Report No. 2093-IND Indonesia Growth Patterns, Social Progress and Development Prospects February 20, 1979 East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY z o H C >0 -4 0 Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its co)ntents may riot otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Before November 15, 1978 US$1.00 = Rp 415 Rp 1.00 = US$0.0024 Rp 1 million = US$2,410 After November 15, 1978 US$1.00 = Rp 625 Rp 1.00 = US$0.0016 Rp 1 million = US$1,600 FISCAL YEAR Government - April 1 to March 31 Bank Indonesia - April 1 to March 31 State Banks - January 1 to December 31 FOR OFFICIAL USE ONLY PREFACE This economic report reflects the findings of an economic and several associated sector missions to Indonesia that were undertaken during the past 14 months. It is the third report of this kind on Indonesia since the Bank embarked upon a series of basic economic reports on its major member countries in 1972. From the Bank's point of view these reports are intended to provide a fresh perspective on the longer term structural developments in the economy, to assess the extent to which they can be shaped by policy changes, and to identify external assistance needs. The two preceding basic economic reports on Indonesia are: Development Issues for Indonesia, Report No. 25-IND, dated December 1, 1972; and Indonesia: Development Prospects and Needs, Report No. 708-IND, dated April 15, 1975. The economic mission responsible for this report comprised the following members: Pieter Bottelier - Mission chief Beatriz Florendo - External debt Sandra Hadler - Export prospects and analysis of New Order economic policies Irfan ul Haque - Oil sector and investment analysis Laurens Hoppenbrouwer - Balance of Payments (RSI) Woo Sik Kee - Public Finance Roger Key (RSI) - Rural development and labor markets Om Nijhawan - Poverty, income distribution and Inpres programs Augustin Que (IFC) - Financial policies and institutions Lyn Squire - Trade and pricing policies Kenji Takeuchi - Non-oil minerals Isabelle Tsakok - Basic health and education services A draft of this report was discussed with the Government of Indonesia in January 1979. The following associated sector and special reports provide the underpinnings for parts of the analysis and some of the projections contained in this report: - Problems and Prospects for Industrial Development in Indonesia, Report No. 6147-IND, dated May 25, 1978 - Indonesia: The Education Sector, Report No. 2364-IND, dated November 1978 - Indonesia: Irrigation Program Review, Report No. 2027a-IND, dated October 16, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - Indonesia: A Review of the Support Services for Food Crop Production, Report No. 2060a-IND, dated December 11, 1978 - Indonesia: Supply Prospects for Major Food Crops, Report No. 2374-IND, dated March 3, 1979 - Employment and Income Distribution in Indonesia, Report No. 2378-IND, dated February 20,1979 - Indonesia: Health Sector Overview, Report No. 2379-IND, dated February 20, 1979 All demographic projections in this report are based on the work of C. Chandrasekaran (RSI) contained in Annex I of the above-mentioned report c Employment and Income Distribution in Indonesia. INDONESIA BASIC ECONOMIC REPORT Table of Contents Page No. 1. PREFACE Text Tables List of Abbreviations SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . i Structure of Report and General Conclusions . . . . . . . . . . i Consumption, Employment and Incomes of the Poor . . . . . . . . iii Monetary Policies and Financial System Development . . . . . . . viii Food Supply and Consumption Strategy . . . . . . . . . . . . . . ix Public Sector Resources . . . . . . . . . . . . . . . . . . . . x Balance of Payments Prospects and External Borrowing . . . . . . xii Overall Growth and Employment Prospects . . . . . . . . . . . . xiii Aid Recommendations . . . . . . . . . . . . . . . . . . . . . . Xiv PART I: ECONOMIC MANAGEMENT, 1967-78: ACHIEVEMENTS AND DILEMMAS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. THE ECONOMY, 1967-78 . . . . . . . . . . . . . . . . . . . . . . . 2 2. MONETARY POLICIES . . . . . . . . . . . . . . . . . . . . . . . . 6 3. THE PURSUIT OF ECONOMIC LIBERALISM . . . . . . . . . . . . . . . . 10 4. SOCIAL DEVELOPMENT AND EMPLOYMENT . . . . . . . . . . . . . . . . 14 5. ECONOMIC PLANNING AND PUBLIC ADMINISTRATION . . . . . . . . . . . 18 PART II: IMPROVEMENTS IN THE WELL-BEING OF THE INDONESIAN POPULATION: THE RECORD OF THE PAST AND THE TASK FOR THE FUTURE INTRODUCTION . . . . . . . . . . . . . . . . . D . . . . . . . . 23 1. GROWTH, DISTRIBUTION AND PATTERNS OF CONSUMPTION EXPENDITURES, 1970-76 . . . . . . . . . . . . . . . . . . . . . . 25 Existing Views . . . . . . . . . . . . . . . . . . . . . . . . . 25 Changes in Per Capita Consumption Expenditure, 1970-76 . . . . . 26 An Analysis of Consumption Expenditures by the Poor, 1970-76 . . 29 Some Characteristics of the Poor . . . . . . . . . . . . . . . . 33 Patterns of Consumption and Calorie Intake, 1970-76 . . . . . . 35 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Page No. 2. TRENDS IN EMPLOYMENT OPPORTUNITIES AND REAL WAGE RATE DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . 38 Population, Labor Force and Employment . . . . . . . . . . . . 38 Employment and Wage Rates in Rural Areas . . . . . . . . . . . 43 Effect of Institutional and Technological Change on Rural Employment . . . . . . . . . . . . . . . . . 45 Employment and Wage Rates in Urban Areas . . . . . . . . . . . 50 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3. THE DELIVERY OF BASIC SERVICES: HEALTH, EDUCATION AND WATER SUPPLY . . . . . . . . . . . . . . . 55 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Developments in Health Care . . . . . . . . . . . . . . . . . 58 Provision of Education Services . . . . . . . . . . . . . . . 60 Water Supply and Sanitation . . . . . . . . . . . . . . . . . 63 Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 4. LESSONS ABOUT EMPLOYMENT GROWTH, CONSUMPTION GROWTH, WAGE RATES AND DEVELOPMENT IN THE PAST, AND THE TASK AHEAD . . . . . 67 Observed Links Between Employment Growth and Income Growth . . 67 Dimensions of the Future Poverty Reduction Problem . . . . . . 69 Population Projections . . . . . . . . . . . . . . . . . . . . 70 Labor Force Projections for Java and Indonesia . . . . . . . . 71 Implications for Regional Growth Requirements and Transmigration . . . . . . . . . . . . . . . . . . . . . 71 PART III: FUTURE DEVELOPMENT PERSPECTIVES AND POLICIES INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 76 1. FACTORS DETERMINING MEDIUM TERM GROWTH PROSPECTS AND IMPLICATIONS OF THE RECENT DEVALUATION . . . . . . . . . . . . . 78 Prospects for Oil . . . . . . . . . . . . . . . . . . . . . . 78 Non-Oil Mineral Prospects . . . . . . . . . . . . . . . . . . 80 Agricultural Prospects . . . . . . . . . . . . . . . . . . . . 81 The Pattern of Investment . . . . . . . . . . . . . . . . . . 81 External Debt and Net Resource Transfers from Abroad . . . . . 83 Terms of Trade Movement and External Demand Growth . . . . . . 84 Implications of the Recent Devaluation of the Rupiah . . . . . 85 Page No. 2. ADMINISTRATIVE CONSTRAINTS, PRICING POLICIES AND THE STRUCTURE OF INCENTIVES . . . . . . . . . . . . . . . . 88 Introduction . . . . . . . . . . . . . . 88 The Incentive Framework as Determined by Trade Taxes and Administrative Bottlenecks . . . . . . . . . . . . . . . 88 Interest Rates, Subsidies and Investment Incentives . . . . . 91 Domestic Oil Pricing and Pricing by State Enterprises . . . . 94 Exchange Rate Policy . . . . . . . . . . . . . . . . . . . . . 96 3. AGRICULTURAL EXPORT PROSPECTS . . . . . . . . . . . . . . . . . 99 General Considerations . . . . . . . . . . . . . . . . . . . . 99 Rubber . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Cassava . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Fish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Timber . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 4. INDUSTRIALIZATION AND MANUFACTURED EXPORTS . . . . . . . . . . . 108 Current Trends and Constraints . . . . . . . . . . . . . . . . 108 The Need to Accelerate Industrial Growth and Exports . . . . . 109 Export Processing Zones . . . . . . . . . . . . . . . . . . . 110 Elements of a Labor Intensive Rural Industralization Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Agro-Industrial Growth Centers . . . . . . . . . . . . . . . . 113 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 113 5. PRIVATE INVESTMENT AND FINANCIAL SYSTEM DEVELOPENT . . . . . . 114 Development Banking, Credit Policies and Interest Rates . . . 114 Private Foreign Investment and Project Appraisal . . . . . . . 117 6. ELEMENTS OF A FOOD SUPPLY AND CONSUMPTION STRATEGY . . . . . . . 118 Food Supply and Demand Trends . . . . . . . . . . . . . . . . 118 Rice Demand and Supply Prospects . . . . . . . . . . . . . . . 120 Irrigation Development . . . . . . . . . . . . . . . . . . . 122 Rice Producer Price and Fertilizer Price . . . . . . . . . . . 124 Supply and Demand Prospects for Major Secondary Food Crops . . 127 Transmigration . . . . . . . . . . . . . . . . . . . . . . . . 129 Wheat and Sorghum . . . . . . . . . . . . . . . . . . . . . . 130 Page No. 7. PUBLIC SECTOR RESOURCES AND EXPENDITURES . . . . . . . . . . . . 131 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 131 Domestic Oil Pricing . . . . . . . . . . . . . . . . . . . . . 132 The Need and Scope for Additional Non-Oil Tax Efforts . . . . 136 Non-Tax Revenues . . . . . . . . . . . . . . . . . . . . . . . 139 Other Public Sector Resources . . . . . . . . . . . . . . . . 139 Overall Public Sector Resources Picture . . . . . . . . . . . 140 Public Sector Investment . . . . . . . . . . . . . . . . . . . 140 8. BALANCE OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . 146 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . 146 Projection Methodology: Current Account . . . . . . . . . . . 146 Pre-Devaluation Balance of Payments Prioiet- . 1 . . . . . 147 Post-Devaluation Balance of Payments ?ojections . . . . . . . 148 Import Projections . . . . . . . . . . . . . . . . . . . . . 148 Export Projections . . . . . . . . . . . . . . . . . . . . . 149 External Borrowing and Capital Account Projections . . . . . 152 Result of Projections . . . . . . . . . . . . . . . . . . 153 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . 154 9. CONCLUDING THOUGHTS ON GROWTH AND EMPLOYMENT PROSPECTS . . . . 156 MAP STATISTICAL ANNEX . . . . . . . . . . . . . . . . . . . . . . . . . 158 QUANTITATIVE PROJECTIONS APPENDIX . . . . . . . . . . . . . . . . . 233 Text Tables Table No. Page No. PART I 1. Money Supply and Factors Affecting Money Supply, 1970-77 . 8 2. Size of INPRES Programs, 1970/71-1977/78 . . . . . . . . . . 15 PART II 1. Alternative Price Deflators, 1970-76 . . . . . . . . . . . . 27 2. Changes in Average per Capita Consumption Expenditure, 1970-76 . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3. Distribution of Per Capita Consumption Expenditure, 1970-76 . 31 4. Absolute Numbers of People Below Various Cut-off Levels of Real Monthly Consumption Expenditure per Capita, 1970-76 . 31 5. Average Annual Growth Rates of Real Monthly Consumption Expenditure per Capita for Selected Groups, 1970-76 . . . . 32 6. Patterns of Consumption EKpenditure and Calorie Intake, 1970-76 . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7. Population, Labor Force and Employment, 1971-76 . . . . . . . 40 8. Sectoral Composition of Employment and Labor Productivity, 1971-76 . . . . . . . . . . . . . . . . . . . . . . . . . . 42 9. Sectoral Composition of Employment in Rural Areas, 1971-76 . 44 10. Indices of Real Wages in Rural Areas, 1969-77 . . . . . . . . 48 11. Money and Real Daily Wages in Urban Areas for Unskilled Construction Labor in the INPRES Kabupaten/Kotamadya Program, 1971/72-1977/78 . . . . . . . . . . . . . . . . . 49 12. Sectoral Composition of Employment in Urban Areas, 1971-76 . 51 13. Social Indicators of Health, Education, and Water Supply. . . 56 14. Development Expenditure on Social Services, 1971/72-1977/78 . 57 15. Aspects of Primary and Secondary Educatton, 1971-78 . . . . . 61 16. Activity of School Leavers One Year after Leaving School in 1976 . . . . . . . . . . . . . . . . . . . . . . . . . . 63 17. Average Annual Growth Rates or the Population, 1976-2001 71 18. Population and Working Age Population Projections, through 2001 . . . . . . . . . . . . . . . . . . . . . . . 72 19. Minimum Average Annual Growth Rates of the Labor Force, 1976-2001 . . . . . . . . . . . . . . . . . . . . . . . . . 72 20. Projected Annual Growth of Population in Age Group 15-24, 1976-2001 . . . . . . . . . . . . . . . . . . . . . . . . . 73 PART III 1. Key Oil Sector Projections and Assumptions, 1978-1990 . . . . 79 2. Medium Term Investment Credits Supplied by Indonesian Banks to Private Sector and Direct Foreign Investment, 1972-1977 83 3. Indonesta's External Public and Publicly Guaranteed Debt as of December 31, 1977 (Disbursed only) Based on June 1978 Exchange Rates . . . . . . . . . . . . . . . . . . . . . . 84 Table No. Page No. PART III (Cont'd) 4. Changes in Relative Prices, 1971-76 . . . . . . . . . . . . 97 5. Volume Indices for Non-Extractive Traditional Exports . . 100 6. Cassava Export Volume and Price Indices, Indonesia and Thailand, 1971-77 . . . . . . . . . . . . . . . . . . 103 7. Indonesia: Manufacturing Employment, 1971-76 . . . . . . 111 8. Selected Food Production, Import and Fertilizer Data, 1968-77 . . . . . . . . . . . . . . . . . . . . . . . . . 120 9. Paddy and Urea Prices in Selected Countries, 1977 . . . . . 125 10. Paddy Support Price and Other Major Price Indices, 1972-77 126 11. Retail Price Indices for Major Food Items in Rural Markets of Java and Madura, 1972-77 . . . . . . . . . . . . . . . 126 12. Comparative Yields of Secondary Crops (1974-76 Average) . 128 13. Estimated Corporate Tax on Oil Under Three Domestic Oil Pricing Policy Options, 1979/80-1983/84 . . . . . . . . . 133 14. Shares of Various Oil Products in Domestic Sales by Volume and Value, and Price per Liter in 1978 . . . . . . 135 15. Share of Non-Oil Government Revenues in GNP in Selected Countries . . . . . . . . . . . . . . . . . . . . . . . . 136 16. Comparison of Tax Structures in Selected Asian Countries . 137 17. Public Sector Resources 1979/80-1983/84 . . . . . . . . . . 142 18. Budget Savings and Investible Resources . . . . . . . . . . 144 19. Projected Resource Gap, 1978/79-1990/91: Pre-Devaluation . 148 20. Projected Resource Gap, 1978/79-1990/91: Post-Devaluation . 151 21. Borrowing Program, Projected Foreign Exchange Availability and Requirement, 1978/79-1990/91 . . . . . . . . . . . . 155 ABBREVIATIONS BAPINDO - Development Bank of Indonesia BAPPEDA - Provincial Planning Agencies BAPPENAS - Badan Perencanaan Pembangunan Nasional - National Development Planning Board BI - Bank Indonesia BIMAS - Bimbingan Massal Swa Sembada Bahan Makanan - Mass Guidance for Self-Sufficiency in Foodstuffs, (a farm input-credit package program) BPS - Biro Pusat Statistik - Central Bureau of Statistics BRI - Bank Rakyat Indonesia - People's Bank of Indonesia BTN - Bank Tabungan Negara - Government Mortgage Bank BULOG - Badan Urusan Logistik - National Logistics Body (Rice procure- ment agency) BUUD - Badan Usaha Unit Desa - Forerunner of KUD as Village Unit Cooperative CRIA - Central Research Institute for Agriculture DGC - Directorate General of Cooperatives DGFC - Directorate General of Food Crops DGWRD - Directorate General of Water Resources Development DEC - Department of Education and Culture HYV - High Yielding Variety INMAS - Intensifikasi Massal - Massive Intensification, (farm input program) INPRES - Instruksi Presiden - "Presidential Instruction", rural works programs IPEDA - luran Pembangunan Dearah - Property Tax IRRI - International Rice Research Institute KABUPATEN - Second Level of Local Government, Regency or District Level KIK - Kredit Investasi Kecil - Small Investment Credit KIP - Kampung Improvement Program KMKP - Kredit Modal Keria Permanen - Small Permanent Working Capital Credit KUD - Koperasi unit Desa - Village Unit Cooperative LEKNAS - National Institute for Economic and Social Research MPW - Ministry of Public Works NAFED - National Agency for Export Development NFPCB - National Family Planning Coordination Board NFPP - National Family Planning Program PDFCI - Private Development Finance Company of Indonesia PENMAS - Non-Formal Education Program PERTAMINA - National Petroleum Corporation PERUMNAS - National Housing Corporation PUSKESMAS - National Health Centers Program PUSRI - Pupak Sriwidjaja - Fertilizer Company REPELITA I - First Development Plan, 1969/70-1973/74 REPELITA II - Second Development Plan, 1974/75-1978/79 REPELITA III - Third Development Plan, 1979/80-1983/84 SUSENAS - Survey Social Ekonomi Nasional - National Household Expendi- ture Survey SAKERNAS - National Labor Force Survey SUPAS - Survey Penduduk Antar Sensus - Intercensal Population Survey SUMMARY AND CONCLUSIONS Structure of Report and General Conclusions 1. This report presents a broad perspective on economic management and social development in Indonesia during the past decade, on medium-term prospects in the light of current trends, and on policy adjustments that may be needed to improve long-term prospects for sustained rapid income and employment growth. Corresponding to these subjects, the report is divided into three parts: Part I identifies the main characteristics and achievements of economic management since the present Government came to power in 1966. Policy initiatives and responses are analyzed in the light of the complex economic problems and crises that had to be dealt with and the opportunities presented by the sudden increase in oil revenues in 1973/74. Several of the fundamental policy dilemmas that emerged remain highly relevant. Part II attempts to analyze changes in the well-being of the Indonesian people during the period 1970-76 by ascertaining the extent to which the impressive overall growth performance of the economy during this period has been associated with improvements in consumption, employment, minimum wages, and the delivery of basic services. Part III reviews development prospects in the light of emerging trends, the recent devaluation of the rupiah, and considers strategies that might be pursued to improve long term performance. 2. The main conclusions of this report are: (a) that the present Government has successfully resuscitated the severely dislocated and near-bankrupt economy it inherited in 1966 and managed the major economic crises with which it has been confronted during the past decade. In so doing it established a reasonable degree of monetary stability and restored external credit worthiness; (b) that, aided by a massive improvement in the country's resource position during the early 1970s and notwithstanding relatively wide income disparities, progress has been made in raising the level of material well-being of the bulk of the population, including the lowest income groups; (c) that, due to a number of new, mostly exogenous circumstances, including an expected slowdown in the growth of oil production, Indonesia is now facing a rapidly tightening overall resource position which will make it more difficult to maintain high levels of income and employment growth, while at the same time preserving monetary stability and external balance; - ii - (d) that, while the next five to ten years may be difficult because of the structural changes needed to adjust to a post-oil boom era, Indonesia's long-term development prospects have been significantly enhanced by the Government's successful population policies which have already contributed to a substantial (approximately 20%) reduction of fertility on Java and Bali during the past decade. These crucially important demographic developments will, particularly after the mid-1980s, be reflected in reduced and declining rates of growth of the labor force. Declining labor force growth rates and the prospects of declining income elasticities of demand for food justify the hope and expectation that with sound policies, Indonesia can eventually (possibly within the next two decades) overcome the severe poverty and food security problems that continue to plague the country today; (e) that, while the November 1978 devaluation of the rupiah from Rp 415 to Rp 625 to the US dollar, is strongly supportive of the structural changes required to reduce economic dependence on oil and to improve long-term development prospects, the devaluation needs to be complemented by measures to promote effective support services and to remove administrative obstacles and other unnecessary cost increasing factors; and (f) that, although the Government (because of the structure of its revenues and expenditures) is a major beneficiary of immediate devaluation-induced income shifts from import users to net-exporters, significant additional public sector resource mobilization efforts will be needed to prevent a sharp decline in the share of Government savings in GNP beyond 1979/80. 3. To maintain rapid growth momentum under the newly emerging circum- stances, to ensure the maximum participation of lower income groups and those without productive assets in the development process, and to enhance food security the following broad policy directions are suggested for consideration: (a) accelerate public sector investment in employment-creating activities and avoid a concentration of public sector investments in capital- intensive projects; (b) improve the general incentive framework and security for domestic and foreign private investment by removing unnecessary administra- tive bottlenecks, eliminating unauthorized levies, and by improving the quality and coverage of investment banking services, particularly in areas outside Jakarta; (c) once the economy has adjusted to the recent devaluation, to step-up significantly domestic resource mobilization efforts through the removal or reduction of budgetary and non-budgetary subsidies, - iii - particularly on domestic oil consumption; through improved tax administration and collection; and through proper economic costing and pricing of the goods and services provided by public sector enterprises; (d) give special emphasis to the promotion of labor-intensive, export- oriented industries and aim at a manufactured export growth rate of not less than 20% p.a. for the next decade. Simultaneously, existing export disincentives should be removed and the develop- ment of backward linkages in industry promoted by reducing or eliminating biases in favor of final stage processing that are inherent in the present tariff structure; (e) avoid subsidizing the use of capital at the expense of labor and promote greater efficiency of resource use by maintaining a positive real lending rate, by reducing unnecessary fiscal in- centives and by tightening credit repayment enforcement. However, the increased use of capital should be acceptable when it is clearly economically and socially efficient, even if it is initially associated with labor-displacement; (f) improve food security, and simultaneously avoid excessive rice import dependency through a combination of food management po- licies; producer pricing policies; greater emphasis on agricultural research and support services for the promotion of secondary food crops; continued vigorous new irrigation and drainage development; improved maintenance of existing irrigation schemes; and large- scale settlement for dry-land farming outside Java and Bali; (g) strengthen institutional support services for the rehabilitation and development of labor-intensive tree crops and export crops, in particular, rubber, oil palm and coconut. 4. The report places great emphasis on the importance of an effi- cient and reliable civil service, on the need to continue efforts aimed at strengthening middle-level management and to promote effective policy coor- dination between Government departments and agencies. This would help to reduce the extreme pressures on a relatively small group of top managers and create more time needed to focus on long-term development issues. Consumption, Employment and Incomes of the Poor 5. The discussion of development prospects and future policies centers on the related issues of poverty reduction and employment growth. Indonesia's fundamental labor surplus problem is not one of open unemployment so much as low returns to labor and the need for the poor to work extremely long hours, often in multiple occupations to earn a minimum living. The term "low quality" employment captures the essence of Indonesia's employment problem - iv - better than the more commonly used phrase "underemployment". The report notes a high degree of mobility and adaptability of the labor force, which is reflected in large seasonal fluctuations in the size of the labor force and in substantial circular migration between cities and rural areas. These factors also contribute to the well known conceptual difficulties of correctly measuring and interpreting the meaning of employment growth and differences between urban and rural population growth in Indonesia. In spite of these difficulties and the weakness of available data, the report is unambiguous in its conclusion that the employment and consumption trends observed during 1970-76, represent an improvement over the period prior to the New Order Policies. 6. Analysis of data from the National Household Surveys (SUSENAS) for 1970 and 1976 suggest that the rapid overall growth of the economy has contributed to a considerable improvement in consumption of all income groups, including the very poor. The data further suggest that increases in per capita consumption were higher in Java than in the other islands and higher in urban areas than in rural areas. There is, however, no evidence that during the 1970-76 period, overall income and wealth disparities have narrowed. 7. Notwithstanding the observed improvements, many Indonesians remain extremely poor: in 1976 when average per capita income was about $280,/1 over 50 million Indonesians (38% of the population) spent less than $90 (1976 prices and exchange rate). The concentration of poverty is particularly high in East and Central Java. These provinces account for about 39% of Indonesia's population and for 45% and 55% respectively of the urban and rural poor. 8. Conclusions concerning employment and wages are more circumspect. Nevertheless, data from the National Labor Force Survey (SAKERNAS) show a high rate of employment growth (over 4% p.a.) between September 1971 and October 1976. But during this period, the labor force also grew at a very high rate and the data suggest that there was some increase in the rate of open unemployment (to 2.3% of the labor force). Since the labor force grew much faster than population in the relevant age groups, a sharp increase in labor force participation rates, from 50% in September 1971 to 55% in October 1976, was observed. Thus, a substantial part of the increased per capita consumption levels is believed to have been related to increased labor force participation. The report finds furthermore that increases in labor force participation rates have been greatest for women in the child-bearing age groups. While this trend is consistent with the general picture of rising education levels, later marriages and declining fertility, it is also un- doubtedly true that much of the employment growth has been of a poor quality in low productivity service and manufacturing activities. 9. Available wage data suggest that these trends in employment have been accompanied by constant or slowly increasing real wages in rural areas and stagnating or marginally declining real wages in urban areas. This conclusion, by virtue of the limited data, is somewhat speculative, but is essentially consistent with sectoral trends in employment and productivity. /1 1978 World Bank Atlas. - V - 10. The share of agricultural employment between 1971 and 1976 declined from 66% to 62%, implying a rapid growth of non-agricultural employment - over 7% p.a. - or 54% of the total increase in employment. Nevertheless, between September 1971 and October 1976, agricultural employment realized a surprisingly high annual growth of over 3%, while agricultural production grew by approxi- mately 3.8% p.a. One of the main factors underlying this high agricultural labor absorption rate was the relatively strong performance of the rice subsector. In Indonesia, rice is by far the most labor intensive food crop, both in terms of man-day inputs per hectare and per ton produced. Within the non-agricultural sectors, the increase in employment occurred largely in proliferating small-scale enterprises in the manufacturing and service sectors where labor productivity is thought to be extremely low. 11. Thus, while historical analysis suggests that structural changes in the employment pattern can occur without depressing real wages provided the overall output growth is rapid, the recent sectoral pattern of labor absorption raises serious questions for the future. Within the agricultural sector, the recent high incremental employment-output ratios, especially for rice, are probably much higher than can be realistically projected for the future. 12. The recent pattern of labor absorption in the non-agricultural sectors also raises the question of whether the relative concentration of investment in capital-intensive industries has been detrimental to employment objectives. 13. The strong growth of mostly low quality employment in extremely small-scale manufacturing units and service sectors has undoubtedly been in part the result of multiplier effects associated with the extremely rapid expansion of Government spending, averaging nearly 20% p.a. in real terms during the period 1970/71-1976/77. 14. As the growing pressure on resources will not permit similar expansion rates in the foreseeable future, employment growth in the secondary and tertiary sectors induced by such multiplier effects will almost certainly decline. This, combined with the expectation that the rate of labor absorp- tion in food production will decelerate, underlies one of the main conclusions of this report, namely, that the rate of labor-intensive manufacturing growth and its regional distribution will become increasingly critical factors, determining the rate and quality of future employment growth. The report suggests the need for a much higher rate of labor-intensive industrial produc- tion growth. A target manufactures export growth rate of not less than 20% p.a. would be an essential component of such a strategy. The recent devalua- tion should make this possible. Institutional developments, which could contribute toward these objectives include, for example, the establishment of export processing zones and agro-industrial centers. - vi - 15. Obvious priority areas for accelerated industrial development are East and Central Java because of the high concentrations of urban and rural poverty in these provinces. But, taking a longer term perspective, the report also stresses the need for rapid non-agricultural employment growth in other parts of the country. Regional labor force growth projections reveal that, as a result of the recent fertility decline on Java, the rate of growth of the labor force there - even without transmigration - is likely to decline rather sharply, during the next several decades, particularly after the mid-1980s, while no such decline is as yet foreseen for the other islands. These diverging trends are particularly pronounced for the 19-24 age group for which the current unemployment rate is much higher than the national average. Agriculture is likely to continue in the near future to be the principal source of additional employment in the other islands (particularly in Sumatra and Kalimantan), but in the longer term, higher rates of labor intensive industrial development will be necessary. 16. The prospects for income growth of the poor are not only influenced by the rate of growth of employment opportunities but also by a host of other factors, including in particular the workers' levels of education and skill, their mobility, and their adaptability to changing circumstances. This suggests that the provision of basic social services (including health, education, training, labor market information, etc.) will be essential components of a pervasive employment-oriented development strategy. The Government's incremental oil revenues since 1973/74 permitted a dramatic increase in expenditures to expand and improve social services, in particular health and education. Various Government INPRES (Instruksi Presiden) programs executed by lower level Governments have played and are playing a major role in the planning of social services and construction of infrastructure facilities (schools, clinics, market places, rural roads) at the village and Kabupaten level. 17. The report finds that much progress has been made in recent years with the provision of education services. Enrollment rates increased at all levels of education. For example, primary school enrollment (excluding over-age students) is expected to reach 85% in 1979 for the 7-12 age group, compared to 60% in 1974; dropout rates - while still high - declined and universal primary education appears to be in sight. A promising non-formal education program has been introduced to increase the basic employable skills of those who have never attended school (estimated in 1976 at 19 million people) and others who left school without completing primary education (a further 21 million). Indonesia's adult literacy rate increased to 62% in 1974 which is much higher than in India (36%), Pakistan (21%), or Bangladesh (23%) but lower than in Thailand (82%) or Philippines (87%). Within Indonesia, large differences in levels of educational attainment between urban and rural areas still exist, but differences between Java and other parts of the country are relatively small. This points to the significant progress that has been made already toward spreading the national education effort, which inter alia aims at making Bahasa Indonesia the lingua franca, throughout the archipelago. - vii - 18. With regard to health services, the report notes the tremendous expansion of physical infrastructure including medical training facilities. Almost 3,000 rural health centers, designed to become the principle vehicles for the delivery of basic health services were constructed between 1969 and 1977. But it is also noted that much of the new physical infrastructure has so far remained under-utilized due to personnel shortage, and a range of other factors, including popular preference for traditional health care services in several areas. More recently, the staffing situation of rural health centers has improved as a result of a new Government policy requiring medical school graduates to serve in the Government health centers before being licensed for private practice. In spite of the Government's health service efforts, available evidence suggests that protein calorie malnutrition has remained a severe national problem. It is estimated to affect maybe one-third of all children under the age of 5 (about 7 million) and is a cause of Indonesia's high rate of infant mortality. 19. Indonesia's nutrition problem is not believed to be primarily related to agricultural supply constraints but to a broader poverty problem (including ignorance of nutritional values), the solution of which is essentially a question of education and of raising effective demand of the poor through income and employment growth. As such, the report's recommenda- tion to aim at much higher levels of labor-intensive industrial development and several other suggestions have an important indirect bearing on the nutrition problem. Selectively targeted Government subsidized nutritional programs, for example, for school children and nursing mothers in poverty concentration areas, however, could be important components of a nutrition strategy. 20. Even if the various targets for urban and rural water supply for Repelita II are fully met, a large majority of Indonesians will remain without easy access to safe drinking water in .1979. Inadequate sewerage and sanitation facilities are still major health hazards, especially in crowded urban areas. The need for an expansion of both water supply and sewerage programs in Repelita III is more than apparent, not only in the shortage and poor service standards of existing facilities, but also in the high incidence of waterborne and related diseases. 21. Similarly, housing conditions are generally very unsatisfactory, especially in crowded urban areas. The achievements made so far with the Government's program for the construction of low-cost rental units are modest and most of the benefits have accrued to low-income civil servants and military personnel, not to the poorest groups. Major new initiatives to increase the supply of appropriately designed low-cost housing in urban areas are needed. Simple and inexpensive improvements in water supply, drainage, footpaths and community facilities executed through Kampung Improvement Projects have contributed to better living conditions in several overcrowded urban areas. But some social dislocation due to property speculation and rent increases is an almost inevitable by-product of selective urban improve- ment projects until such time that their area coverage extends to all priority areas in the major cities, which is the Government's objective. - viii - Monetary Policies and Financial System Development 22. The report takes the view that the system of a convertible currency pegged to the US dollar has served Indonesia well, in spite of serious domestic price inflation in some years. No change in the policy of maintaining a convertible currency with a minimum of exchange restrictions is suggested but the report does stress the need for better information on private external capital flows and private external debt to improve the data base needed for balance of payments projections and external debt management. The report argues that it would have been virtually impossible to avoid completely a number of important relative price shifts in the economy which took place during the period 1972-76 and which generally tended to favor import substi- tution over export development, and the use of imported capital over domestic nontradeable inputs. These relative price shifts were the result of rapid domestic price inflation from the second half of 1972 through the first half of 1976 caused initially by harvest failure (1972/73) and later on by a combination of rapid monetary expansion following the commodity (especially oil) boom of 1973/74 and domestic supply constraints. 23. The recent (November 15, 1978) devaluation of the rupiah from Rp 415 to Rp 625 per US dollar was designed to encourage labor-intensive import substitution and non-oil export growth by reversing some of the adverse relative price shifts-that had occurred earlier this decade. The correct timing of this drastic and unique policy action is believed to be a strong factor enhancing the probability of its success. The strongest immediate effects of the devaluation, however, will be a dramatic increase in budgetary revenues. Government expenditures will, of course, also increase as a result of the devaluation but the net budgetary position in terms of rupiahs should strongly improve. While the recent devaluation will generally tend to facilitate export promotion efforts, the report places great emphasis on the importance of developing effective support services and of reducing administrative obstacles and other unnecessary cost-increasing factors. 24. Some supportive measures to prevent a recurrence of spiralling inflation which would quickly erode the potential benefits of the devaluation have already been taken. Such measures include the lowering of import tariffs by 50% on a wide range of intermediate inputs, stringent temporary price controls, and a temporary increase in budgetary subsidies to initially isolate key consumption items such as rice and certain other products from the effects of the devaluation. Aside from the budget's influence over the prices of essential commodities through decisions on subsidies, one important factor determining domestic price responses to the devaluation will be the degree of monetary control exercised. There is likely to be a conflict, however, between the needs to contain devaluation-induced monetary expansion and the need for additional credit to assist import-dependent and externally indebted enterprises in overcoming temporary cash-flow problems and to promote new private investment, in line with the structural objectives of the devaluation. A temporary relaxation of credit restrictions may be needed to counter the inevitable deflationary impact of the devaluation on certain - ix - sectors of the economy. Nonetheless, a sizeable budget surplus in fiscal 1979/80 almost certainly will be needed to assist in neutralizing the effect of a sudden sharp increase in the rate of monetary expansion following the devaluation. 25. The broadening and deepening of domestic capital markets through financial system development and the creation of long maturity financial assets are considered essential components of a strategy aimed at promoting domestic private investment, resource mobilization, and reducing dependency on foreign banking services. On-going investments and working capital credit programs aimed at medium- and small-scale enterprises are endorsed but the report suggests the need for a significant expansion of such programs and also the need for greater access to equity capital for domestic enterprises. 26. In this context the importance of promoting the development of investment banks, including the Regional Development Banks is emphasized. The latter in particular, could become powerful instruments for the promotion of indigenous private enterprise outside the main urban areas. This again is primarily a question of institutional development, training, and the encourage- ment of a development-oriented attitude on the part of investment banks. Some of these may have in the past devoted too little effort to assisting in the identification and support of Vuitable projects and entrepreneurs. 27. With regard to the structure of interest rates, the report notes that progress has been made towards elimination of the inverted structure of medium-term lending rates and term deposit rates and reduction of the related budgetary subsidy to State Banks. The inverted rate structure was the result of unorthodox but successful interest rate policies that were first introduced in the late 1960s (to absorb excess liquidity and simultaneously encourage productive investment) and reintroduced in 1974 for the same purposes. Further rationalization and simplification of the rate structure is considered desirable. It is also suggested that the use of Bank Indonesia's rediscount mechanism as an instrument to promote and subsidize lending by State Banks to particular subsectors, makes it very difficult to assess the true economic costs of these credit programs. Food Supply and Consumption Strategy 28. Despite unprecedented achievements in rice production, the past decade has seen a continuing decline in Indonesia's food self-sufficiency. Between 1968-77, the composite trend growth rates of domestic food energy production and availability were approximately 3.2% and 3.7% respectively. These growth rates reflect a growing import dependency on rice, sugar, wheat and recently coconut oil, as well as a reduction or disappearance of maize, cassava, meat and coconut product exports. 29. Rice remains the preferred staple, accounting for 50% of domestic food energy consumption. In 1966, the single most pressing problem facing the new Government was the declining rice availability. Immediate priority was given to revitalizing the rice sector. As a result of Government's efforts to rehabilitate and extend irrigable sawah, of programs to supply inputs, technical assistance, marketing and price stabilization schemes, - x - between 1968-77 rice production realized a 3.5% trend growth rate. Simul- taneously, the composite trend growth of the 5 main secondary staples (maize, cassava, peanuts, sweet potatoes and soybeans) was 1.6% p.a. While these secondary crops have not been neglected entirely, they have received rela- tively little Government support until recently. 30. Comparison of plausible supply and demand scenarios suggest the likelihood of increasing import requirements of basic foods and especially of rice, wheat, sugar, refined vegetable oils and possibly maize. While gap projections of this kind are of limited use, they do, however, provide some indication of the magnitude of the problem to be prevented. While part of the solution to Indonesia's nutrition problem lies in accelerating productive employment growth outside the agricultural sector, there is an urgent need for a comprehensive food production and consumption strategy. Nonetheless, the report concludes that it is within Indonesia's capacity over the next two decades to eliminate or, at least, contain the projected food deficits. 31. In the case of rice, the gradually shifting emphasis in irrigation development from rehabilitation to extension of irrigated areas and to swamp drainage projects is expected to slow average annual yield improvements as lower productivity lands have to be taken into production. Considering the potential for increasing fertilizer and insecticide use and for improving the local performance of the most recent IRRI varieties, the report concludes that, it is possible to maintain an average annual rice production growth rate of 3.5% through 1990, provided ongoing and planned irrigation projects mature on schedule. The recent devaluation has provided significant additional room for further rice producer price increases aimed at stimulating supply. 32. While slower growth in rice yields per harvested ha is anticipated, a comparison of yields for secondary crops in a number of countries suggests that these crops offer considerable potential for raising Indonesia's domestic food self-sufficiency. The report concludes that the rate of growth of secondary food production can be raised from 1.6% to 3.5% p.a. chiefly through yield improvements and that failure to achieve a gradual shift in the overall food production and consumption pattern from rice to secondary crops would compromise other development objectives especially in view of the cost and risks (vulnerability) associated with excessive rice import dependency. Public Sector Resources 33. During the past several years Indonesia has had large budgetary surpluses and a strong balance of payments with rising foreign exchange reserves. For various, mostly exogenous reasons, this situation is expected to change. Part III of the Report discusses the adverse public sector resource implications of the expected stagnation of oil production during the next several years, the rising costs of oil production due to the rapidly - xi - growing share of secondary recovery and high cost off-shore wells in total output, and a new incentive package that was recently introduced to encourage exploration. The medium term outlook for public sector resources is further- more depressed by the probability that net resource transfers from abroad on account of past and future external borrowing, will be much lower in terms of import capacity than during the past five years. This is largely the result of the external commercial debt profile as it has evolved since the early 1970s (including Pertamina's borrowing and Government cash loans that were needed to effectively deal with the Pertamina crisis) and reduced levels of concessionary loan commitments following the oil boom of 1973/74. 34. The recent devaluation of the rupiah does not by itself improve the real resource position of the country as a whole, but provides the means to do so while at the same time reducing temporarily the pressure on the budget. The devaluation has therefore delayed, but not removed the need for increased public sector resource mobilization efforts in other ways. After reduction of some import taxes, the budgetary revenue increase (in local currency terms) resulting from the devaluation would be of the order of Rp 1.5 trillion in 1979/80. Additional Government expenditures (in local currency terms), including increased subsidies on rice, petroleum products, fertilizer and selected other consumption items (needed to initially isolate those products from devaluation-induced domestic price effects) would be of the order of Rp 1.2 to Rp 1.3 trillion, leaving (an incremental) net budget surplus of approximately Rp 200-300 billion in 1979/80. 35. Although some initial increases in consumer subsidies are most probably needed to protect consumers by smoothing and delaying domestic price effects of the devaluation, the report argues strongly for the gradual reduction and eventually, elimination of most subsidies. It focuses parti- cularly on domestic oil pricing as one of the major fiscal policy issues facing Indonesia today. 36. Before the devaluation of November 1978, the economic subsidy on domestic oil consumption (due to below opportunity-cost pricing) of diesel, fuel oil and kerosene accounted for about 1.5% of GNP. Less than half of this subsidy is in the form of a budgetary subsidy. The remainder is revenue foregone. One effect of the devaluation was to raise the share of domestic oil consumption subsidies in GNP from 1.5 to 2%. As a rapidly growing pro- portion of Indonesia's total oil output is consumed domestically (about 18% in 1978), failure to impose the same tax burden on domestic consumption as on exported oil will inevitably lead to a deteriorating budgetary situation, when production stagnates. 37. Significant domestic oil price increases (to international oppor- tunity cost levels) however, will not be enough. Greater non-oil tax efforts, including improved tax collection and possibly selective tax increases are - xii - also needed. In addition, efforts to improve the operating efficiency of pubic sector enterprises and to promote proper economic costing and pricing of their products and services are stressed as essential components of a national resource mobilization strategy. The report suggests that there is ample room for increased taxation of the rich and better tax collection. It furthermore suggests that the major domestic resource mobilization effort that will be needed to reduce dependency on oil and compensate for its relative decline, while politically difficult and painful to certain groups, should not present an insuperable problem or an undue burden on the economy. Balance of Payments Prospects and External Borrowing 38. Before the devaluation of November 1978, balance of payments projections based on current trends and expectations suggested the strong probability that, without special export promotion efforts, a shortage of foreign exchange would become a binding constraint on development efforts within the next few years. The devaluation will undoubtedly have an influence on balance of payments prospects but it is too early to make more than a very preliminary and speculative assessment. 39. The period since the previous devaluation (1971) has been marked by sudden and very large international price shifts and by major changes in the composition of Indonesia's imports due to the tremendous expansion of public sector investment. These and other unusual circumstances, including the size of the devaluation itself, make the use for projection purposes of income and price elasticities of import demand, calculated on the basis of quantitative relationships since 1971, very hazardous. It is, nonetheless, practically certain that import growth will be slower than it otherwise would have been and that this will begin to take effect almost immediately. 40. Initially, the import effect of the devaluation is likely to be rather small and largely limited to non-essential, non-program imports. Ultimately, changes in the size and structure of import demand will be strongly influenced by the effect that the devaluation will have on the overall growth performance of the economy. The devaluation has undoubtedly given a strong impetus to export-oriented agriculture and should also facilitate the emergence and growth of export-oriented industries. In the case of most primary products, however, the short-term export response is likely to be limited because of supply rigidities (including long gestation periods in the case of tree crops). 41. On balance there seems now, after the devaluation, less ground for the fear that the balance of payments will become a development constraint. No dramatic improvements, however, are foreseen in the immediate future. The next few years could still show some deterioration in the overall position because of lagged import and export effects. The improvement in overall prospects does, of course, not reduce the need for the removal of administra- tive and physical obstacles and the development of institutional support - xiii - services for the promotion of traditional export crops and export-oriented, labor-intensive manufacturing growth. The report places great emphasis on the importance in Indonesia of institutional factors as constituting perhaps greater supply constraints than relative pricing factors. 42. External borrowing projections in the report are linked to estimated future debt service capacity. This somewhat unorthodox approach has been adopted in light of the concern of the Government to limit new commercial external borrowing to internationally recognized "safe" limits. Starting from existing debt service obligations and the likely availability of grants and concessionary loans from IGGI members and other sources in future years, the report calculates the approximate magnitude of new commercial borrowing consistent with the objective of keeping the external debt service ratio below 20%. 43. These projections suggest that the permissible level of new commer- cial borrowing consistent with prudent external debt management would rise from about $750 million in the base year (1978) to around $2 billion by 1986 and to around $3 billion by 1990. These amounts would be approximately consistent with projected net capital inflow requirements. Under these projections the ratio of outstanding and disbursed external debt to export earnings would stay around 1.5, the debt service ratio would remain around 17-18%, and foreign exchange reserves would continue to provide a comfortable cushion of the equivalent of about 4 months worth of imports. Overall Growth and Employment Prospects 44. Medium term prospects as determined by developments already in motion and exogenous factors, such as the expected temporary stagnation in oil production suggest that it will be difficult to achieve an overall GNP growth rate of more than 6.5% during the next 3-5 years. This is consi- derably less than the average growth performance of the economy during the past decade. But if the broad patterns of relationships between output growth, employment growth, and personal consumption growth observed for the period September 1971 through October 1976 does not drastically change (which is possible in the short term), a GNP growth rate of 6-6.5% could still be consistent with an overall employment growth target rate of around 3% p.a. 45. The economy will enter a difficult period of adjustment to post oil boom conditions involving structural changes in the pattern of production and the sources of savings. Much less reliance will have to' be placed on the oil sector as the main engine of growth and source of Government revenues. Much more reliance will have to be placed on agriculture and industry and generally on the mobilization of Indonesia's most abundant and inexhaustible resource: people. The devaluation may be expected to facilitate the structural changes that are needed. With improved incentives, consistent with the objectives of an employment-oriented strategy, and adequate Government investment and institutional support services for agriculture and small industries, it should in due course be possible to raise the overall growth rate of the economy to at least 7 or 8%, which would be a major help in accelerating the further elimination of poverty. - xiv - Aid Recommendation 46. The magnitude of Indonesia's remaining poverty problem and the Government's commitment to vigorous policies in dealing with it well justify a continued growth in Official Development Assistance. Indications are that Official Development Assistance in 1978 from IGGI members fell short of the levels recommended and pledged at last year's IGGI meeting. During Repelita III, Government intends to continue limiting commercial borrowing to levels consistent with prudent external debt management; for 1979 this means that new commercial commitments of around $850 million are envisaged. In order to maintain a reasonable growth of disbursements and net resource transfers during Repelita III and beyond, Official Development Assistance should reach, on average, at least $2.3 billion per annum during 1979-83. For 1979, the first year of Repelita III, a level of around $1,925 million of Official Development Assistance would be a minimum requirement. Multilateral financial institutions and sources outside IGGI are expected to provide about half of this total, or close to $1.0 billion. It is recommended that bilateral IGGI members should aim at providing as a minimum, Official Development Assistance in the form of loans and grants of $950 million during 1979, which at present exchange rates and prices would be roughly equivalent to the amount recommended last year. PART I ECONOMIC MANAGEMENT 1967-78: ACHIEVEMENTS AND DILEMMAS INTRODUCTION 1.1 In 1967, it was virtually impossible to disagree with Benjamin Higgins' judgment "that Indonesia must surely be accounted the number one failure among the major underdeveloped countries."/l Since this time, Indonesia, and the world at large, have passed through a decade of turbulent social and economic change such that in 1978, Indonesia was a very different country. During this time, Government has had to deal with a series of extraordinarily complex problems of economic management. Thus, the aim of Part I is not simply to review the major events and developments, but to identify the main characteristics of economic management and the ensuing policy dilemmas that have emerged in the past decade. 1.2 It: will be seen that the management and policies of the early part of this period, with one important exception, can be characterized as intent on disassociating from the legacies of the early 1960s. The exception to this is national unity - quite possibly Sukarno's greatest contribution to Indonesia. Fully recognizing the importance of this objective, the need for which arises as much from the size and geographic dispersion of the country as from its history and ethnic diversity, the present Government has both preserved and strengthened the unity of the Indonesian people. 1.3 Throughout the period since 1967, Government has met with considerable success in changing the direction of the economy from that of the preceding period, notwithstanding the major obstacles that emerged during this time. If economic management has not yet succeeded in fully realizing Indonesia's potential for growth, it is because of the difficulties in transforming, at least within the span of ten years, the underlying socio-economic fabric into one that is truly development oriented. 1.4 The main purpose of Part I is to provide some historical background needed for an understanding of the present economic situation and the environ- ment in which policies for future development are made. While it is hoped that this will provide a useful, interpretive review of events that have unfolded for those readers who are unfamiliar with Indonesia, by its nature this approach is necessarily a subjective one. The outline of this Part is as follows: Chapter 1 provides a brief review of the economic situation of Indonesia in 1967 and sketches the major developments since this time. Chapters 2-5 deal with the major preoccupations and perceptions of management that have governed their reaction to, or handling of these developments. /1 Benjamin Higgins "Indonesia: The Chronic Dropout" in his Economic Development, W.W. Norton, N.Y., 1968. - 2 - CHAPTER 1: THE ECONOMY, 1967-1978 1.5 In 1966, the new Government of Indonesia inherited an essentially bankrupt economy. Between 1958 and 1966 the economic situation had seriously deteriorated as a result of both internal and external political difficulties, adverse economic policies (including an unrealistic exchange rate) and a decline in the terms of trade in the order of 40%, due largely to a sharp drop in rubber prices. Such infrastructure as existed, had been allowed to deteriorate as a result of both political disruptions and uncertainties, while production suffered the consequences of material and equipment short- ages. Thus, national income stagnated and per capita incomes and food avail- ability fell. These problems were further compounded by increased expend- itures on defense and prestige projects, which were for the most part unpro- ductive. Aside from stagnating (if not declining) production and sharply declining export earnings, Indonesia was engulfed by a rapidly accelerating hyper-inflation, which in 1966 was approximately 650%. 1.6 On taking over, the new Government gave immediate priority to stabilization measures and to the rehabilitation of infrastructure and production facilities. The measures taken - and their success - have been described in detail in various World Bank and IMF reports. In brief, these involved an immediate tightening of credit through a balanced budget and the restoration of a real rate of interest on loans and deposits. In addition, a realistic exchange rate was established, debt rescheduled and commodity and other aid was sought and obtained on favorable terms. This inflow of program aid and foodstuffs, after several years of essential isolation from the Western world, did much to provide an immediate stimulus to the economy. 1.7 Rehabilitation and regeneration of the economy required investment in all sectors of the economy and every possible effort/l was made to attract capital (both domestic and foreign). To this end, there was a widespread abolition of Government controls on investment, materials allocation, imports and foreign exchange. As a result, in the two years 1967 and 1968, inflation was substantially controlled, Government receipts doubled in real terms and production, especially of foodstuffs, and exports began to recover. 1.8 Thus, by the beginning of 1969, Government felt sufficiently in control of the situation as to embark on a first Five-Year Plan (Repelita I. 1969/70-1973/74). At this time, per capita incomes of the bottom 40% had probably only recovered to the pre-World War II level. A majority of the population depended exclusively, or primarily, on agriculture where there had been little improvement in productivity in the post-World War II period. Outside the agricultural sector, employment opportunities were scarce and, as a result, unemployment was widespread. 1.9 The first Five-Year Plan was framed in general and flexible terms. Implementation was to be in a series of successive one-year plans, which were to be formulated and/or modified in the light of new developments and the experience of earlier years. The Plan was generally modest; major structural changes were not envisaged. High priority was placed, appropriately, on /l Laws promoting foreign and domestic investment were promulgated in 1967 and 1968, respectively. - 3 - rehabilitation rather than new investment. Since Government had committed itself to balanced budgets, while the tax base was low and before private savings had recovered from the hyper-inflation of the mid-1960s, it looked to foreign aid and private foreign investment to provide the greater part of investment resources, especially in industry and mining. 1.10 In physical terms, the emphasis of the Plan was on the rehabilita- tion of neglected infrastructure (especially irrigation and transportation) and on the expansion of agriculture, for both domestic and foreign markets. The Plan also included the beginnings of a Government sponsored and operated family planning program, which has since become one of the main pillars of Indonesia's long-term development strategy. Although transmigration and the creation of employment were important development objectives, no specific targets were established. 1.11 For the most part, physical objectives were realized. GNP growth accelerated, realizing an average annual 9% rate during the Plan period. Investments also increased rapidly, rising from 9% to 19% of GDP. Economic and political stability were largely restored and many of the most pressing rehabilitation projects completed. Thus, in preparing the second Plan (Repelita II, 1974/75-1978/79), Government's hands were no longer forced by immediate necessity; rather the over-riding goal became to raise the living standards of all sections of the population, while simultaneously laying the foundations for the future development of the country. 1.12 The second Plan identified a number of specific low-income target groups and, in general, adopted an employment oriented strategy. Simultaneously, provision was made for a continued growth in investments, both because capital intensity was expected to increase as the rehabilitation phase grew to an end and because more socially oriented investments were anticipated. Overall, the economy was expected to grow at 7.5% per annum during the second Plan period. 1.13 However, by this time, changes were taking place in the international community, which were to both aid and thwart Government's efforts at orderly development. Until 1971, Indonesia's economic reconstruction had taken place in a relatively stable international environment. Since this time, the international economy has been subjected to crisis after crisis. Beginning in 1971, the adoption by most industrial countries of a flexible exchange rate policy began a period of continuing exchange rate adjustments. Between 1971 and 1973, growth in the world economy was very rapid, bottlenecks in supplies of several important raw materials and foodstuffs developed which, coinciding with widespread unfavorable weather, culminated in the commodity boom of 1973/74. 1.14 In August 1971, shortly after the suspension of the US dollar's convertibility into gold, the rupiah was devalued from Rp 378 to Rp 415 to the dollar. The rupiah remained tied to the US dollar at this rate until November 15, 1978, despite the dollar's sharp decline in recent years, which meant a substantial depreciation of the rupiah against most other major currencies. Many important developments in the Indonesian economy, including the extraordinarily strong export performance of the early 1970s were related to exogenous factors. Perhaps the most important of those factors was the OPEC oil price hike of 1973/74, which followed the commodity boom already mentioned. 1.15 Coinciding with the price increases, oil production also increased rapidly - by about 50% between 1971 and 1973. This was largely a result of the successful efforts of Government and the national petroleum company, Pertamina, in earlier years to attract foreign companies and to induce substantial effort and investment by them in exploration and development of new fields, by means of Production Sharing Contracts. In fact, the success of Pertamina in drawing foreign capital into the oil sector was one of the most significant accomplishments of the period - not just because of direct forward linkage effects but more importantly, because of its instrumentality in changing Indonesia's image in the international financial community. As a result, between 1972 and 1974, the gross value of Indonesian crude oil production jumped from $1.1 billion to $6.0 billion. Net oil exports in this period increased from $0.4 billion to $2.6 billion and subsequently to $4.4 billion in 1977/78. 1.16 Thus, at the beginning of the second Plan, the public sector found itself with a large and unexpected increase in revenues - a situation which is probably not less difficult to handle successfully than the sudden drop in resource availability experienced by many oil-importing countries. The increase in revenues also contributed to a marked improvement in Indonesia's external creditworthiness and in turn facilitated the borrowing spree by Pertamina, which culminated in the financial crisis of 1975, known as the "Pertamina crisis". 1.17 Through 1974/75, Pertamina had undertaken a large and diversified investment program, for most of which it had failed to arrange appropriate medium or long-term financing./1 Before long, and especially as the inter- national money markets tightened, Pertamina began to face serious liquidity problems. It began to withhold the legally obligatory pass-through to the Government of part of the revenues received from the foreign oil companies, as well as taxes due on its own net income. In addition, Pertamina failed to meet payments due on certain of its short-term foreign borrowing and some of its obligations to suppliers, both foreign and domestic. Furthermore, it faced the prospect of large similar obligations coming due in 1975/76 which it was unlikely to be able to meet. These developments posed serious problems for the budgetary position and the external credit standing of the Government. Decisive corrective action was taken early in March 1975. Namely, Government resolved to assist Pertamina so as to enable it to meet the outstanding debt service obligations. Furthermore, in order to assure orderly and coordinated /1 State enterprises were not permitted to borrow abroad funds beyond one-year maturity without prior approval from the Ministry of Finance. Pertamina, however, circumvented these regulations, by borrowing heavily on short-term. - 5 - borrowing in the international market, Pertamina and all other State enterprises were to refrain from independent borrowing abroad, and Bank Indonesia and the Ministry of Finance were made responsible for raising from international commercial sources the needed funds on their behalf. A systematic review of Pertamina's investment plans was undertaken with a view to rationalize financial policies and reduce conglomerate holdings outside the oil sector. 1.18 The passing of time and the fundamentally strong underlying economy have helped fade the memories of the Pertamina affair in the international financial community, although less so domestically. The period since 1975 has been, not unexpectedly, one of slightly slower growth but, nonetheless, one of considerable strength. Demand for Indonesia's major exports has been extremely healthy, leading to continued and substantial improvement in international reserves. At the same time, much progress was made towards establishing domestic monetary stability. Thus, the devaluation of November 15, 1978, when the exchange rate was set at Rp 625 per US dollar, occurring after an unprecedentedly good rice harvest, at a time of healthy reserves and when the annual inflation rate for the first ten months of 1978 had averaged only about 3%, took place from a position of strength. While the immediate impact of this adjustment on exports will probably be small, it should help in the longer--run to achieve the structural economic changes needed to ensure a sustainable high rate of production and employment growth with rising returns to labor and external balance in a post-oil boom era. Also, occurring on the eve of Repelita III (1979/80 - 1983/84), the devaluation provides a timely opportunity for redress of those institutional factors that are presently constraining Indonesia from once more accelerating its growth momentum. - 6 - CHAPTER 2: MONETARY POLICIES 1.19 In 1966, the new Government took control of an economy on the verge of collapse, not least because of the rapidly accelerating inflation. Since this time, Government has continued to attach high priority to the control of inflation. As soon as its position had been consolidated the Government launched (October 1966) a stabilization program, which was also intended to restore the economy to its growth path. From an annual rate of increase of approximately 650% in 1976, the increase in the Jakarta Cost of Living Index fell to 113% in 1967, 85% in 1968 and 10% in 1969. Simultaneously, output began to recover, with GNP realizing a 9% annual growth between 1968 and 1973. Considering its severity, to bring inflation under control in three years was an almost unparalleled achievement. In fact, the Indonesian stabilization- with-growth program is still viewed as a model of effective policy-making in a hyper-inflation situation. 1.20 The stabilization program entailed a concerted and simultaneous attack on inflation on several fronts, including a direct attack on the underlying causes of excessive monetary expansion - namely, the budget deficit and other public sector deficits. A second component was the implementation of a selective credit program which directed new bank credit to economic activities that were essential for the elimination of supply bottlenecks and for the rehabilitation of existing production facilities, rather than for financing new investment. A third element, the move away from a controlled economy to a system in which market forces played a much more significant role was also important. Externally, this involved the dismantling of a complex system of foreign exchange restrictions and its replacement with market-determined, flexible exchange rates. Internally, Government adopted a policy of non-interference in product and factor markets; for instance, public utility prices and other administered prices were permitted to rise to economic levels. As a result of the relaxation of controls, and although the public sector remained important, the private sector was given greater scope and direct foreign investment was encouraged. Finally, the unanimity of Government and their full support of the economic managers in implementing the difficult policies was also an essential element in the success of the stabilization program. This unanimity, together with the consistency with which the basic stabilization program was implemented were also important factors in restoring public confidence in the Government and its policies. 1.21 Finally, in April 1970, unification of the exchange rate with full convertibility (Rp 378 to US$1) symbolized, in the eyes of the international community, completion of the stabilization program and a period of rapid economic expansion followed. The spectre of inflation, however, continued to haunt both the Government and the private sector. - 7 - 1.22 Between late 1970 and September 1972, inflation averaged approxi- mately 10% per annum,1 even though the money supply continued to expand at an annual rate of about 30% per annum. This was possible only because the ratio of liquid assets to national income had fallen to a very low level during the rapid inflation of the mid-1960s. It seemed reasonable to assume that, as inflation lessened, the rate of monetary expansion would slacken. Instead, in the second half of 1972 the rate of expansion of the money supply (currency and demand deposits) accelerated to 46% on an annual basis, and domestic credit also expanded rapidly. 1.23 Alone, these developments might not have precipitated a steep rise in prices. However, severe drought reduced the dry season rice crop in 1972 and between September 1972 and January 1973, before the imports were received, rice prices increased by up to 100%. With the arrival and distribution of the imported rice, the price increase was stopped and, to some extent, even reversed, but the temporary inability of Government to maintain this major element of its stabilization package was undoubtedly an important psychological factor in the following inflation. 1.24 Unlike the inflation of the mid-1960s, world inflation began to influence the Indonesian economy in the second half of 1973. While world price developments were to be a major factor in the inflation of 1973 and 1974, domestic credit expansion and external borrowing by the public sector (in particular Pertamina) also contributed. In the second half of 1973 and early 1974, bank credit and the transactions demand for money increased rapidly and Government seemed uncertain as to the appropriate rate of monetary expansion. Simultaneously, the additional oil revenues were becoming available, adding further fuel to inflation. 1.25 However, it is difficult, if not impossible, to ascertain whether the monetary factors were the cause or effect of inflation. Examination of the monetary data suggests that the substantial increase in the net claims of the banking system on the private sector, was, in fact, the largest single factor in the increase in money supply in 1973 (Table 1). This was a period when, stimulated by both rapid international economic growth and financial developments, the private sector was especially buoyant and investment activity high. Also, analysis of monthly data suggests that the rapid increase in the general price level occurred almost simultaneously with the /1 Annual percentage rate of inflation: 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 650 113 85 10 8.9 2.5 25.8 27.3 33.3 19.7 14.2 11.8 6.7 Source: Bank Indonesia, based on Jakarta Cost of Living Index; year end to year end. - 8 - large increase in money supply. The absence of a significant lag would suggest, therefore, that for the most part, the money supply responded to inflationary pressures and not vice versa. Table 1: MONEY SUPPLY AND FACTORS AFFECTING MONEY SUPPLY, 1970-77 (Rp billon) 1970 1971 1972 1973 1974 1975 1976 1977 Money (Ml) 250 321 475 669 937 1,250 1,603 2,022 Quasi-money 80 149 220 318 515 728 1,028 1,125 Total 330 470 695 987 1,452 1,978 2,631 2,147 Change in money (Ml)% 36 28 48 41 40 33 28 26 Changes in factors affecting money supply Net foreign assets 15.5 10.7 212.3 75.3 364.0 -588.5 345.0 568.5 Net claims on Government -12.2 55.0 -50.8 -42.5 -116.6 162.3 -290.1 -259.1 Net claims on public sector enterprises -2.5 15.8 -3.0 66.9 280.4 926.0 401.9 -22.5 Net claims on private sector 146.0 101.9 183.4 407.6 145.9 298.4 361.5 325.6 Net others -49.8 -44.4 -188.1 -312.9 -405.2 -485.6 -465.4 -209.1 Source: Bank Indonesia. 1.26 By March 1974, the annual rate of inflation had reached nearly 50%. Thus in April 1974, Government introduced an anti-inflation package designed to reduce inflation in fiscal 1974/75 to 20%. These measures were primarily of a monetary nature,/l although Government had also planned a substantial budgetary surplus for fiscal 1974/75. Simultaneously, Government announced its intention to establish a national stockpile, initially of rice and subsequently also of fertilizer, cement and other strategic commodities. 1.27 Following the introduction of this anti-inflation package, the annual inflation rate as from April, fell below 20% per annum. The rupture of the inflationary spiral, however, was aided in addition to the Government's policy measures and the generally cautious behavior of the banking community, by the prospect of an excellent rice crop and by the fact that the commodity boom had already peaked in the first quarter of 1974. /1 The monetary measures included credit controls, a high interest rate policy and the introduction of a two-year time deposit scheme. - 9 - 1.28 By the end of 1974, Government felt sufficiently in control of the situation to relax some of the April measures. Thus, interest rates were reduced significantly and credit restrictions were reduced selectively. Budget allocaLions for salaries and the development program were stepped up so as to fully utilize additional revenues accruing from oil. In addition, rice and fertilizer prices were increased so as to reduce the subsidy element. Nonetheless, price increases remained moderate, and the average annual rate of inflation has declined continuously, falling in 1977 to less than 12%, and subsequently to 3% in the first ten months of 1978. 1.29 Thus, Government had succeeded for the second time in bringing inflation under control, although on this occasion there is concern that Government may have been less successful in simultaneously achieving growth objectives. The inflation package of April 1974, combined with the indigeniz- ation measures which were introduced essentially at the same time, may have dampened private investment and thus economic growth. These developments were subsequently reinforced by the world recession. Although the restrictive measures included raising interest rates, the principal factors were the introduction of credit ceilings for commercial banks and regulations making it more expensive to use foreign deposits as a basis for domestic credit. The introduction of these controls, in effect, weakened the already small private sector in Indonesia while not seriously constraining the ability of the public sector to borrow. Claims of the banking system on the public sector increased dramatically in 1975 when Bank Indonesia repaid large amounts of external debt incurred by Pertamina in preceding years. 1.30 In short, since 1967 Government has accorded a high priority to the control of inflation. The policies pursued have shown both resourcefulness and an intimate familiarity with the workings of the economy. Some of these policies, such as for example the inverted interest rate structure,/1 are unique to Indonesia. Nevertheless, the question arises as to whether measures introduced, especially in 1974, have not been, perhaps, too deflationary. Presently, in the immediate post-devaluation phase, Government will face the same dilemma in finding monetary policies that are simultaneously compatible with monetary stability and economic expansion. /1 In most banking systems, deposit rates are lower than lending rates. In Indonesia, however, as an inducement for investment and to absorb liquidity after the hyper-inflation of the mid-1960s, this structure was "inverted". - 10 - CHAPTER 3t THE PURSUIT OF ECONOMIC LIBERALISM 1.31 A second major instance of the present Government's policies attempting to break with the past and simultaneously conflicting with other development objectives has been the policy of moving away from a system of controlled economy towards one in which market forces play a more important role. 1.32 Initially, there was a concerted effort to open up the economy./1 As noted above, an important instance of this, and one of which the monetary authorities are fiercely protective, is the full convertibility of the rupiah. Maintaining convertibility, though on balance almost certainly highly beneficial, has not been without cost for Indonesia: private capital has been permitted to flow in and out of the economy in a relatively un- restricted manner, imposing constraints on monetary policy. Government's desire to break with the system of controlled economy also led, as mentioned above, to a low level of interference in product and factor prices. As a result of these measures and although the public sector remained important, the private sector was given greater scope and direct private foreign invest- ment was encouraged. In fact, the degree of economic liberalization realized by 1972 was unusual for a country at this stage of development. 1.33 However, coinciding with the second bout of inflation, a partial reversal in policies can be discerned with market intervention (especially in the form of subsidies and protection) gradually becoming more pervasive. This reversal can be attributed to a number of factors. In part, the pursuit of economic liberalization was in itself associated with a conflict between the dual objectives of growth and equity. For instance, the policy of non- interference has contributed to the emergence of a small, wealthy elite which is difficult to reconcile with Government's growth-with-equity objectives. The growth of this elite has been assisted by an income tax system which is easy to evade and not strongly progresssive. The structure of interest rates and the relatively free allocation of credits by the banking system prior to April 1974, has also unintentionally encouraged investments in activities, which from a development viewpoint were of a low priority and may thus have furthered the interests of this elite. 1.34 Towards the end of the first Plan period, it was apparent that the consumption and assets of a small elite had increased appreciably. At the same time, the real incomes of large urban groups - and possibly also of the rural landless - were at least temporarily, squeezed as a result of the 1972 rice supply shortfall and the rapidly accelerating inflation. Frustrations began to surface and criticism of Government, particularly in the urban areas, became quite open. /1 In this chapter, "open" economy refers not just to freeing the external monetary sector to market forces, but also the domestic product and factor markets. - 11 - 1.35 To these feelings of dissatisfation were added the resentment of certain elements of society who felt they were not participating in the exercise of political power, and economic frustrations, especially on the part of "indigenous" entrepreneurs. Thus, resentment was building up against the Government. This situation climaxed in January 1974 during the visit of the Japanese Prime Minister, when serious rioting broke out in Jakarta. Govern- ment took strong measures against those regarded as responsible for the riots, but also took measures on several fronts, to deal with the causes of disaffec- tion. In an effort to mollify nationalist sentiments, policies on foreign investment were modified to require greater participation by Indonesians, and special credit schemes (already under consideration in late 1973), were introduced to promote and strengthen small, indigenous entrepreneurs./1 To facilitate Indonesian participation in foreign and domestic companies, provi- sion was also made for the establishment of a stock exchange. Fields closed to foreign investment were enlarged, tax holidays and import duty concessions reduced, and employment and training of Indonesian personnel by foreign firms accelerated. In addition, Government announced its intention to give greater weight to social objectives in the second Plan. 1.36 At the same time, inflation, particularly as this resulted from the rice harvest failure and the international commodity boom, led to controls (especially on credit availability and terms) while concern for consumers led to subsidies., The availability of oil revenues permitted heavy subsidies on fertilizer, rice and oil and to a lesser extent on sugar, wheat and pesticides. In keeping with the pursuit of economic liberalism, free markets in those commodities have nonetheless existed throughout. With the exception of oil subsidies, which now account /2 for about 2.0% of GNP, these subsidies were largely a temporary phenomenon, reflecting Government's decision to prevent the thin and volatile international market for these commodities from dis- rupting domestic price levels. As order returned to these markets and as Indonesian production of nitrogenous fertilizer increased, the elimination of subsidies freed monies for the investment program and public services. More recently, the aftermath of the 1978 devaluation has provided perhaps the strongest evidence of Government's willingness to intervene in domestic markets in the interest of domestic price stability. Such intervention as was necessary to prevent sudden and socially disruptive domestic price increases including the increased subsidization (relative to the new inter- national price levels in rupiah terms) of petroleum products and essential consumer goods should, however, be of a temporary nature. /1 Namely, Indonesian shareholders are, within a specified period, to own at least 51% of the shares in foreign or joint venture companies and medium- term credits, as a rule, can only be given to businesses in which at least 50% of domestic capital is in indigenous hands. /2 After the devaluation of November 1978. For calculation of this subsidy see Part III, Chapter 2. - 12 - 1.37 Perhaps most significantly, a shift away from the pursuit of economic liberalism can be seen in the evolution of industrial sector policies. In 1966, the present Government inherited a relatively large public sector. In line with its policy of opening up the economy to market forces, Government returned to private hands certain public companies and it appeared, at first, that Government would rely heavily on private sector initiatives. But beginning with the growth in oil revenues in 1973/74, Government appears to have reverted to a public sector-dominated industrial strategy. Thus, the share of Government development expenditures in total domestic investment increased from 28% in the first Plan period to approximately 60% in recent years. While a considerable proportion of the additional development expend- itures has gone to agriculture and socially oriented programs, the greater part has gone into relatively capital intensive sectors such as power, tele- communications, transport and heavy industry /I to provide the basis for future growth. 1.38 This pattern of public sector investment raises the question of the objectives of Government's industrialization policies and their suitability to the Indonesian economy at this stage. While it can be argued that the only feasible way of quickly utilizing the unexpected windfall in oil revenues was to invest in capital intensive projects, Government did face a choice of preserving the revenues for itself, and thus committing itself to an expanded role in the industrialization of the economy, or to using the funds to finance private sector investment. 1.39 Public sector industrial investments have had little direct impact on employment generation. In general, industrialization has probably con- tributed less to the growth of the economy in recent years than might have been anticipated and this can be attributed, at least in part, to Government's pre-occupation with the establishment of a limited number of large, highly capital intensive projects./2 Although free enterprise is encouraged and private foreign investments are welcome, Government has done relatively little to assist in the development of a grass-roots manufacturing sector with its consequent employment generation benefits, other than to create a number of special credit programs for small enterprises, which absorbed an insignificant proportion of the additional Government resources./3 /1 It is estimated that by the end of Repelita II, a handful of industries (cement, fertilizers, steel, pulp and paper) will have absorbed almost two thirds of the Government investment in medium and large-scale industry. /2 Some of these projects were initiated by Pertamina prior to 1975. /3 Disbursements (including working capital) under these schemes reached cumulatively, approximately Rp 150 billion by October 1978. - 13 - 1.40 Given the relative abundance of labor and certain valuable raw materials there are numerous industries (for instance, the processing of timber and rubber, light engineering and assembly of electronic equipment) which, given encouragement could, through their potential for higher pro- ductivity employment and foreign exchange generation, have furthered Govern- ment's overall development objectives. While it is undoubtedly easier for Government to establish high technology projects than to get small scale industry programs beyond the drawing board, it is surprising that more was not done to create an environment conducive to private sector initiative in this area. - 14 - CHAPTER 4: SOCIAL DEVELOPMENT AND EMPLOYMENT 1.41 The heavy emphasis on capital intensive industrial and infrastruc- ture investments in recent years notwithstanding; the Government has nonethe- less been deeply concerned with social developments throughout this period. In 1966, the most pressing problem facing Government was the food shortage. With insufficient foreign exchange to permit imports, Government gave immediate priority to increasing the production of foodstuffs, especially rice. In particular, Government expanded nationwide the pilot BIMAS agricultural credit and input supply scheme within one year. The results of this program were encouraging; despite dislocations caused by the civil disturbances that accompanied political change in 1966 and 1967, rice production in 1968 in- creased by an unprecedented 10%. While the BIMAS and later INMAS schemes have subsequently run into difficulties, these should not detract from Government's ability to get these massive schemes off the ground in the first place, nor from their considerable initial success. Nonetheless, Government s programs in the smallholder sector, more by default than by design have tended to favor rice farmers at the expense of non-rice farmers, and land- owners over the landless. 1.42 In its concern to improve the well-being of the poor, Government during the first two development plans, has not relied exclusively on a high growth strategy. Key elements in Government's strategy for coming directly to grips with the income, employment and poverty problems have been the family planning programs, education, health and other social services, and in part- icular the various INPRES (Instruksi Presiden) programs. The main objective of the INPRES programs has been to build social and economic infrastructure while at the same time creating wage employment. Presently there are seven INPRES programs: Desa, Kabupaten, Propinsi, Primary Schools, Health, Markets and Forestry; the first three of which provide general development assistance to the lower levels of Government, while the last four are functionally oriented. 1.43 Since 1970, allocations for the INPRES programs have increased substantially - INPRES expenditures were given a tremendous boost by the additional oil revenues - and prior to the recent devaluation accounted for over one-fifth of the Government's rupiah development budget (Table 2). Table 2: SIZE OF INPRES PROGRAMS, 1970/71-1977/78 (Rp billion) 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 INPRES Desa 5.6 5.3 7.1 5.7 11.4 14.4 19.8 23.2 INPRES Kabupaten 5.7 8.8 16.3 19.2 42.7 55.8 62.1 69.1 INPRES Propinsi /a 20.7 20.8 20.7 20.7 47.6 47.4 59.7 75.4 INPRES Primary schools - - - 16.4 19.7 48.2 57.7 85.0 INPRES Health - - - - 4.5 14.4 17.9 26.3 INPRES Forestry - - - - - - 16.0 24.5 INPRES Markets - - - - - - 0.1 1.2 Total INPRES 32.0 34.9 44.1 62.0 125.9 180.2 233.3 304.7 (current prices) National accounts investment deflator 34.9 36.5 45.3 5.6 68.1 84.4 100.0 107.0 Total INPRES 91.7 95.6 97.4 113.6 184.9 213.5 233.3 284.8 (in 1976 prices) Total Central Government Development Expenditure 125.0 150.9 228.4 359.6 770.5 953.8 1,296.6 1,419.2 (current prices) /b INPRES as % of Government 25.6 23.1 19.3 17.2 16.3 18.9 18.0 21.5 Development Expenditure /b /a Figures for the years 1970/71-1973/74 pertain to ADO transfer to provinces which was replaced by INPRES Propinsi in 1974/75. /b Excludes external project aid; includes fertilizer subsidies. SRnirce: Ministry of Finance budaet data. - 6 - 1.44 The INPRES programs have made a significant contribution to various facets of Indonesia's development. They have had a substantial direct employ- ment effect - in 1977/78 approximately 180 million man-days were generated, accounting for an estimated 1% of total employment. The programs have also contributed to output growth, particularly in the agricultural sector. Greater attention is now being given in the INPRES programs to the creation of assets which would stimulate long-term employment opportunities. However, it is increasingly being realized that the INPRES type programs cannot be a full solution to employment and poverty problems. In short, the experience with the INPRES programs underlines the general theme of this report, namely the need for a truly comprehensive, long-term, employment-oriented development strategy. The provision of productive and remunerative work opportunities to accommodate new entrants to the labor force, while simultaneously reducing existing unemployment will be, perhaps, the major problem facing Government in the next decade and one that will play a crucial role in distributing widely the benefits of development. 1.45 Recognizing that realization of social and economic objectives will be severely constrained by population growth, Government has consistently attached high priority to the implementation of family planning programs. An official family planning program, the National Family Planning Program (NFPP), was first introduced in 1969/70 in Java and Bali, and in 1974/75 was extended to 10 provinces in the other islands. It is Government's intention to extend the program to the remaining provinces, with 10% of Indonesia's population, in the near future. The NFPP enjoys strong political backing and support from major religious groups and private organizations. 1.46 In terms of the number of acceptors, the program has been extremely successful, despite a total budgetary cost of only $35 million in 1977/78. Also, the median age of acceptors and the number of live births reported by them have recently been declining. In Java and Bali the number of new acceptors recruited annually increased from 53,000 in 1969/70 to 1,979,000 in 1976/77. In terms of married women aged 15-44 years, the acceptors recruited annually increased from 5 per 1,000 in 1969/70 to 137 per 1,000 in 1976/77. The Na- tional Family Planning Coordinating Board (NFPCB) estimates that the percent- age of married women aged 15-44 using some form of contraception increased from 7.8% in 1972/73, to 24.1% in 1976/77 in Java and Bali./1 The response to the program in the other islands, though still modest, has also been /1 This is corroborated by information contained in the Indonesian Fertility Survey, undertaken as part of the Intercensal Population Survey in April 1976. - 17 - encouraging; by January 1978 it was estimated that as a result of the program, 8% of married women aged 15-44 were then using some form of contraception./1 1.47 One of the most outstanding and encouraging developments to emerge from recent data was the marked decline in fertility levels in Java and Bali. The total fertility rate for Java and Bali declined by an estimated 20% between 1967 and 1976. The NFPP is believed to have played an important role in this decline. But the Indonesian family planning program could not have been so successful without the active participation of women in the develop- ment process. 1.48 To further promote the effectiveness of the family planning program, a community incentive scheme will be introduced in the near future. Under this scheme, certain administrative units (selected from among those with the lowest per capita incomes) are to be given additional investment funds if they perform well in the field of family planning. Government has already introduced some negative incentives; for instance the limiting of incode tax deductions and rice rations for' its employees to the first three children. Government is also considering a much more comprehensive approach to population planning by pervading Government policies with population concerns, wherever possible. Namely, a concerted attack on all those variables that have been shown to have some bearing on,fertility, in particular the employment, education, health, and nutrition of women. If successfully influenced, there can be little doubt that these variables would have a fundamental additional impact on fertility. /1 Government has set contraceptive use targets for 1983/84 of 35% in Java-Bali, 25% for the 10 provinces to which the program was extended in 1974/75 and 15% for the remaining provinces, which have yet to be brought into the program. Achievements so far suggest that these goals are realizable. - 18 - CHAPTER 5: ECONOMIC PLANNING AND PUBLIC ADMINISTRATION 1.49 One constantly recurring theme in analysis of economic developments in Indonesia during the past ten years has been the pre-occupation of managers and planners with pressing day-to-day matters. In part, this is due to the almost constant crises with which Government has had to contend. From the problems of stabilizing and rehabilitating the economy in the late 1960s, to the rice harvest failure of 1972/73, the oil price explosion in 1973/74 (because of the revenue effects, this was an enormous consumer of scarce managerial resources), the financial crisis of Pertamina in 1975, and the developing foodcrop production problems since this time, Government has had few respites. Handling of these crises in particular the Pertamina affair, was mostly impressive with Government acting always swiftly and boldly. However, there is also evidence of farsightedness and concern with long term considerations, as illustrated by the Government's education and population policies and the recent devaluation of the rupiah. 1.50 An important factor contributing to the apparent pre-occupation of Government with short-term matters is the nature of the civil service and the scarcity of skilled and experienced technicians and managers. In 1966, the present Government inherited a vastly over-staffed and under-paid bureaucracy. The elitist and top-down nature of this civil service, has had furthermore the effect of over-burdening the few officials at the top, while at the lower levels, the system provided little on-the-job-training, thus reinforcing the scarcity of trained decision-makers and stifling initiative. Government fully recognized the need to overhaul its bureaucracy, but rather than delay imple- mentation of stabilization and development plans, Government decided to launch its plans and simultaneously tackle the problem of administrative reform. Unable, in the short-run to improve salaries, even selectively, Government imposed a ceiling on manpower. 1.51 Today, the bureaucracy has not yet overcome the deficiencies of the previous regime and, in addition, is dealing with an expanded and more complex economy, vastly increased levels of Government spending and increased responsibilities which followed in the wake of the financial crisis of Per- tamina. Furthermore, although the salaries of civil servants have increased substantially as resources expanded, they remain on the whole modest, although at the lower levels, Government wages and salaries are now more or less at par with those prevailing in the private sector. - 19 - 1.52 The nature of the civil service has also contributed to a serious dilemma which the Government has continued to face during the past decade namely, the need to find a workable balance between the conflicting require- ments of centralization and decentralization in the management of the develop- ment process in a country of some 13,000 islands. On the one hand, the need for unity combined with the scarcity of skilled managerial staff and compounded by the hierarchical nature of the civil service, have been centralizing forces. On the other, size, geography, ethnic diversity and Government's desire to break away from a system of controlled economy, all call for greater decentralization. While progress towards greater decentralization of decision- making power within the Indonesian civil service has been made, most important decisions, and many minor ones still go directly to the top levels in Jakarta for approval. As a result, higher level staff are over-burdened, often buried deep in the minutiae of growth tactics. Fearful, since they are accountable, of delegating responsibility the higher echelons thus contribute to the pre-occupation of Government with matters at hand. Simultaneously, at the lower levels, initiative is stifled and staff gain little experience, reinforcing the scarcity of trained decision-makers. 1.53 The impact of these forces can be found in all sectors of the economy, both public and private. Within the Government, questions of policy continue to be resolved in Jakarta. But Government appears to be fully aware of the importance of building up planning and technical capacity at the provincial and regency (Kabupaten) level, and in recent years has taken steps to strengthen regional development capabilities. For instance, the various INPRES programs, should be seen as an attempt towards increasing decentrali- zation of the development effort. Another example is the establishment, by Decree, of provincial planning agencies (Bappeda) in 1974. The success of efforts to increase planning and implementation at the regional level is a function of the quality of the staff. This, however, is still very uneven and there is an urgent need for the training of regional technical and admi- nistrative staff on a large scale. The draft third Five Year Development Plan (Repelita III, 1979/80 - 1983/89) indicates that it is the Government's intention to further strengthen local authorities by giving them added responsibilities for the formulation and execution of development projects. 1.54 Within the private sector there has also been a high degree of concentration of industrial investment and service facilities in and around Jakarta. However, to promote regional development, particularly in the other islands, Government has recently introduced geographically differentiated incentives for industrial investment. - 20 - 1.55 The dilemma between centralization and decentralization has been especially apparent in the industrial sector. In line with its policy in the late 1960s and early 1970s of opening up the economy to market forces, Government returned to private hands certain public companies and it appeared, at first, that Government would rely heavily on private sector initiatives. But by 1974 as noted in Chapter 3, Government appeared to have shifted towards greater reliance on public sector investment for its industrial development strategy. In part this shift was due to a failure of the private sector to invest in priority industries, such as fertilizer, cement and sugar. More recently, and in particular with the introduction of the draft third Five-Year Plan, emphasis has shifted once again towards private investment. 1.56 Finally, economic growth requires that public and private adminis- trators work in tandem. In Indonesia, this relationship could improve if the Government were more responsive to the needs of the private sector. Then controls would be less prone to multiply needlessly and progress might be hastened. The pervasive growth of administrative and other obstacles has especially tended to hinder the development of small and medium-scale businesses, which cannot afford to devote time and resources to overcoming such obstacles, or to gaining access to appropriate Government officials. 1.57 In summary, Government's policies in specific instances, such as the control of inflation, the formulation and implementation of population planning policies, and the opening of the economy to the outside world, have met with unqualified success. In other areas, such as eliminating the system of a controlled economy and allowing market forces a greater role, success has been more limited. In part, this has resulted from emerging conflict between priorities, such as growth with equity and price stability, or between centralization and decentralization, but it also stems from Govern- ment's realization that it was unable to change, at least within the span of ten years, the underlying socio-economic fabric. In particular, it requires little exaggeration to say that the need to raise the general level of efficiency and reliability of the Government bureaucracy remains one of the highest national development priorities. 1.58 It would be presumptuous to suggest solutions to these problems, which obviously gravely pre-occupy the Government./1 Yet, discussion of Indonesia's development needs without drawing attention to this important constraint would be futile. One necessary condition for the evolution of an ethical, reliable and efficient civil service is a salary level that will permit Government personnel to live on the official earnings of a single /1 For instance Government instigated, in September 1978, a managerial training program for civil servants aimed at redressing several of the problems mentioned in this chapter. - 21 - full-time job. At this time it may be impracticable to further raise salaries substantially across the board since there are so many redundant staff at the lower levels. This calls for a program of selective increases combined with inducements and other measures to reduce excess personnel and to strengthen middle management levels. 1.59 Finally, the experience of Indonesia in the decade since 1967 demonstrates the results which can be obtained from generally sound develop- ment policies, continuation of which will be central to the success of future development efforts. Nonetheless, effective resource use, especially in the public sector, will depend on the capacity of the public administration to implement those programs necessary for economic growth and for the equitable distribution of the benefits of this growth. - 22 - PART II IMPROVEMENTS IN THE WELL-BEING OF THE INDONESIAN POPULATION: THE RECORD OF THE PAST AND THE TASK FOR THE FUTURE - 23 - INTRODUCTION 2.1 An analysis of changes in the well-being of the people of the world's fifth most populous nation is an ambitious and risky undertaking. Inevitably, the available information is less complete than one would wish it to be, and the quality of the data is assuredly uneven. Moreover, the aggregate nature of much of the data leads to the omission of significant details and to generalizations which, while of some general validity, may not match the experience or perceptions of particular groups. 2.2 The period 1970-76 is perhaps too short for an analysis of this kind. But it is the only period for which relevant comprehensive statistical surveys of comparable method and coverage are available. It was a period of extraordinarily rapid change, shaped in part by exogenous developments such as the quintupling of oil prices and substantially higher prices for many of Indonesia's other export commodities, but with great progress in many sectors not directly affected by these exogenous changes. The present analysis attempts to ascertain the extent to which the impressive overall growth performance of the economy during this period was associated with an improve- ment in the well-being of the Indonesian people. In spite of the risks, there are at least two reasons why such an attempt is worthwhile. First, the ultimate objective of economic development is the improvement of living standards of all members of society; an economy's achievements, therefore, are more meaningfully assessed in terms of income growth and distribution, job opportunities and real wage rates, health status, educational attainment and the adequacy of other basic services, than in terms of overall macro-economic measures such as the growth rate of GNP. And second, an analysis of the past allows the identification of trends or structural changes in the economy which may carry implications for the formulation of future policies. 2.3 A broad view is adopted here which encompasses changes not only in monetary measures of well-being (e.g. consumption expenditure) but also in a number of non-monetary measures such as the availability of remunerative employment, rates of morbidity and mortality, and educational attainment. Since advances on some of these fronts can occur at the same time as setbacks on others, such a comprehensive approach may yield ambiguous conclusions. No official statistical data that would permit an assessment of intertemporal changes in income distribution are available. Consequently, data on consumption expenditures serve as a basis for the analysis of changes in monetary measures of well-being. Similarly, the extreme paucity of time-series data on wage rates hampers the analysis of changes in remunerative job opportunities. The rapid increase in prices during these years together with sharp fluctuations in the rate of inflation further complicate the analysis of income and wage rates for which real rather than nominal values are required. - 24 - 2.4 The analysis is conducted in three parts. In Chapter 1 data from the 1970 and 1976 National Household Expenditure Surveys (SUSENAS) are used to investigate changes in real consumption expenditure over time. The analysis focuses in particular on the extent to which the poorer groups of society have improved their position both relatively and absolutely. Recog- nizing that many of the poor do not possess any factor of production other than their own labor, Chapter 2 contains an analysis of changes in the level and composition of employment and, to the extent the data allow, in real wage rates. A further indication of well-being, namely, access to publicly- provided services such as health, education, water supply and housing, is discussed in Chapter 3. An overall assessment of the recent past, is presented in Chapter 4, which in particular attempts to draw some general conclusions regarding the relationships between employment growth, consumption growth and wage rates from the analysis in Chapters 1 and 2, and outlines the task ahead in terms of poverty elimination. - 25 - CRAPTER 1: GROWTH, DISTRIBUTION AND PATTERNS OF CONSUMPTION EXPENDITURES, 1970-76 Existing Views 2.5 There is general agreement that the level of development of the Indonesian economy is still very low: in 1976 GNP per capita is estimated to have been of the order of US$280 /1. There is also agreement that in recent years the Indonesian economy has grown very rapidly: between 1970 and 1976 GNP per capita at constant 1976 market prices inreased by 39% implying an annual average growth rate of 5.6%. Average per capita GNY grew almost half as fast again as per capita GNP as a result of favorable terms of trade developments. 2.6 Part of the growth of the economy was directly or indirectly related to the rising value of oil exports. Growth of the modern industrial and service sectors responded rapidly to booming levels of demand, while Government, benefitting from increased oil taxation, was able to increase public expenditure very rapidly. Over the 1970/71-1976/77 period, Government expenditure increased by 41.4% annually in current prices, equivalent to about 18.5% annually in real terms (using the Jakarta Cost of Living Index as deflator). The most rapid growth was in development expenditure which increased from 37.1% of the total to 55.9% over this period. Views diverge substantially on the extent to which the benefits of rapid production and investment growth reached the poorer members of Indonesian society. Some maintain that real consumption expenditure of the poor in both urban and rural areas has increased noticeably./2 Others have argued on the basis of empirical microeconomic studies that certain groups of the population, especially in rural Java, have experienced declining levels of real consumption expenditure./3 In this chapter the 1970 SUSENAS and its 1976 counterpart are /1 1978 World Bank Atlas; calculated at the exchange rate US$1 = Rp 415. /2 See L.N. Perera "Economic Growth and the Distribution of Income in Indonesia (1970-76)". UN OTC Project: INS/72/002, Jakarta, July 1977, pp. 23-24; and H.W. Arndt, "Development and Equality: The Indonesian Case," World Development, Volume 3, Nos. 2 and 3, February-March, 1975, pp. 77-84. /3 Including, for example, Professor Sajogyo of the Agricultural Institute in Bogor, Mr. Singarimbun of the Population Institute in Jogjakarta, R. Sinaga and B. White of the Agro-Economic Survey's Rural Dynamics Project, W. Collier, of the Agricultural Development Council, Inc. Bogor, and Ingrid Palmer, "Rural Poverty in Indonesia, with Special Reference to Java", in "Poverty and Landlessness in Rural Asia," International Labor Organization, Geneva, 1977. - 26 - and its 1976 counterpart are used to shed further light on recent changes in the well-being of Indonesia's poor as indicated by changes in real per capita consumption expenditure. There are, of course, other important indicators of the well-being of people and changes in personal or family consumption expenditures offer at best a limited perspective on this very complex question. It should also be stressed that economic analysis cannot answer the question whether absolute changes in personal expenditures correspond in any way to subjectively perceived changes in well-being as influenced by shifts in the relative distribution of expenditures and other factors. 2.7 The January-April 1970 and the January-April 1976 SUSENAS are the only systematically-collected bodies of data on household consumption expendi- ture which allow meaningful intertemporal comparisons. The surveys covered the whole of Indonesia with the exception of Maluku and Irian Jaya in 1970 and Irian Jaya in 1976; the sample was 9,485 households in 1970, and 17,204 in 1976; the period of observation was the same in both years and did not overlap with Islamic feasts or fasts; information was collected on items purchased in the market as well as on home-produced items and gifts in kind; the surveys were implemented by specially trained staff. The data produced by the surveys is, therefore, considered of reasonable quality and coverage. 2.8 The analysis is conducted in three stages. In the first instance, the broad changes in average per capita consumption expenditure are examined. Subsequently, however, attention focuses on the changes in consumption expenditure for those occupying the bottom rungs of the consumption distribu- tion ladder. And finally, patterns of consumption are analyzed to determine changes in food expenditure and caloric intake. Changes in Per Capita Consumption Expenditure, 1970-76 2.9 Between 1970 and 1976, major price increases occurred throughout the economy and relative prices also changed markedly. In deflating current price consumption levels to obtain the corresponding real levels it is essential, therefore, to allow for both the overall rise in prices and the rise in food prices relative to non-food prices. The latter is especially important in the analysis of the real changes in the consumption levels of low-income groups since they typically allocate a larger proportion of total expenditure to food than is the case for richer consumers (see Table 6) and consequently suffer more severely from increases in food prices. 2.10 Given the obvious importance of the deflator in calculating real expenditure, a number of different indices have been compared in Table 1, from which the following points emerge. First, prices in Java have increased more rapidly than in the other islands. Second, food prices have indeed increased more quickly than non-food prices. These points suggest that regional disaggre- gation is important and that allowance should be made for variations in the proportion of expenditure allocated to food. And third, where comparisons - 27 - Table 1: ALTERNATIVE PRICE DEFLATORS, 1970-76 (1970 = 100) 1976 Index Java Other Islands Price index Urban Rural Urban Rural Indonesia Nine essential commodities 273 /a 284 /b 250 /a 244 /b 269 /c Cost of living 273 /d - 249 /d - - Food 305 /e 304 /f 265 /e -- GDP - - - - 292 /a Table XIII.10, Statistical Pocketbook, 1974-75, Table 11.2, Price Indexes of 9 Essential Commodities in Selected Cities, Indikator Ekonomi, April 1976. The city indices for 1976 are the simple averages of the monthly indexes for January to April 1976 for each city. The urban index of price increases for Java and the other islands for each year is the average of the increases in the city indices weighted by the 1971 urban population of the province for which the city is the provincial capital. Maluku and Irian Jaya were excluded from the other islands index because these provinces are not included in the consumption expenditure figures; Bengkulu, East Nusa Tenggara and East Kalimantan are excluded because city price indices were not available for 1970. /b This uses data from Table 11.6, Price Indexes of 9 Essential Commodities in the Rural Markets of Java and Madura, Indikator Ekonomi, July 1976 and Table 11.7, Price Indexes of 9 Essential Commodities in the Rural Market of Outer-Java, Indikator Ekonomi, October 1977. The 1976 index is calculated as the simple average of the monthly indices for January to April 1976. The price increase between 1970 and 1976 is assumed to be the same as that of food articles and is taken from Table 11.5, Price Indices of 12 food Articles in the Rural Markets of Java and Madura, Indikator Ekonomi, July 1976. /c Obtained by the application of 1976 population weights to the 9 Essential Commodities Price Index for urban and rural Java and the other islands. /d From Table 11.3, Cost of Living Index in Jakarta, and Table 11.4, Cost of Living Index in Selected Cities, Indikator Ekonomi, July 1976. The same procedure is used to get increases for the urban indices for Java and the other islands as those for the urban indices for 9 Essential Commodities. /e This uses the ,food index component of the Cost of Living Index and follows exactly the same procedure as for the general Cost of Living Index. If Table 11.5, Price Indexes of 12 Food Articles in the Rural Markets of Java and Madura, Indikator Ekonomi, July 1976. The 1976 index is the simple average of the monthly indices for January to April 1976. - 28 - are possible, the Nine Essential Commodities Index and the Cost of Living Index reveal almost identical price increases. 2.11 For the following analysis or cnanges in real consumption expendi- ture, the Nine Essential Commodities Index is considered the most appropriate deflator. To begin with, it is the only major index for which regional, urban and rural indices are calculated. In addition, as noted above, changes i the Nine Essential Commodities Index for urban areas between 1970 and 1976 are corroborated by the changes in the Cost of Living Index which is the other major, broadly-based price index. More importantly, however, the weight assigned to food in the Nine Essential Commodities Index is not dissimilar to the proportion of expenditure allocated to food by the bottom 40% of the population. For example, for urban areas the weight for food is 76.6% /1 compared to a proportion of expenditure allocated to food by the urban bottom 40% of approximately 70% in both 1970 and 1976 (see Table 6). And for rural areas, the weight for food is 89.1% compared to almost 80% of expenditure allocated to food by the rural bottom 40% in both 1970 and 1976. Thus, the index is well suited to an analysis of change in the real consump- tion expenditure of the poor. But because the proportion of expenditure allocated to food by the higher income groups is smaller, use of the index may overstate the price increase experienced by the population at large and hence understate increases in real consumption at higher income levels. Moreover, various changes were made in the construction of the indices in 1973 which have not been incorporated retrospectively in the pre-1973 publishec indices./2 The results reported below should, therefore, be considered as only indicative of the broad changes occurring during the period 1970 to 1976. 2.12 Table 2 shows the increase in nominal and real per capita consump- tion expenditure over the period 1970 to 1976. Real per capita consumption expenditure has increased in both urban and rural areas of Java and the other islands. The expenditure growth in urban areas of Java and the other islands is particularly impressive: in Java the increase is of the order of 7% per annum while in the other islands the increase, although lower, is still nearly 5% per annum. Growth in per capita consumption was also experienced in rural areas but on a much less impressive scale: rural Java enjoyed a 3% growth rate compared to 2% in the rural areas of the other islands. /1 Weekly Report, No. 982, Bank Indonesia, Jakarta, 1978. /2 A detailed analysis of the Price Index of 12 Food Articles in the Rural Markets of Java and Madura reveals that when the pre-1973 indices are calculated to ensure comparability with the post-1973 published indices, the overall price increase between 1970 and 1976 may be somewhat less than that indicated by the published statistics. - 29 - Table 2: CHANGES IN AVERAGE PER CAPITA CONSUMPTION EXPENDITURE, 1970-76 (Rp/Month) Java Other Islands Urban Rural Urban Rural Indonesia At current prices /a 1970 1,714 1,029 2,070 1,712 1,356 1976 7,025 3,468 6,797 4,766 4,490 At constant prices /b 1970 1,714 1,029 2,070 1,712 1,356 1976 2,576 1,221 2,719 1,953 1,672 Percentage increase 50.3% 18.7% 31.4% 14.1% 23.3% Annual growth rate 7.0% 2.9% 4.9% 2.2% 3.6% /a Survey Sosial Ekonomi Nasional (SUSENAS), January-April, 1970 and January-April, 1976, Biro Pusat Statistik, Jakarta. /b Deflated by the Nine Essential Commodities Index reported in Table 1. Note that comparisons of real consumption expenditure between regions or between urban and rural locations cannot be made from this table if inter- regional or urban-rural price differentials are thought to be significant. 2.13 A regional comparison suggests that Java has improved its position relative to the other islands regardless of urban or rural location. An urban-rural comparison suggests that urban areas, especially in Java, have improved their position relative to their rural counterparts. Since price differentials between regions and between urban and rural areas are generally not very large, it seems at least plausible that absolute consumption levels in urban areas of Java and the other islands are roughly similar and consider- ably higher than absolute consumption levels in the corresponding rural areas. Within rural areas, absolute consumption levels appear to be noticeably higher in the other islands than in Java. Over the six-year period, however, whereas Java has narrowed the gap between itself and the other islands, the gap between urban and rural consumption levels appears to have increased everywhere. An Analysis of Consumption Expenditure by the Poor, 1970-76 2.14 While movements in average per capita consumption levels for broad groups of society are obviously of interest, it is also important to examine the distribution of the benefits of growth within groups and to focus in particular on society's poorest members. It should be stressed from the outset that no definitive conclusions can be based on SUSENAS data with regard to changes in relative inequality between 1970 and 1976. Cross checks between - 30 - SUSENAS consumption data, national accounts and various other relevant sources strongly suggest that the 1970 Survey understates aggregate private consumption by perhaps as much as 15-20% and that the degree of under-reporting may be even higher in the 1976 Survey. Because of the sampling techniques used it is probable that most of the under-reporting has occurred at the higher income levels. The SUSENAS, therefore, probably understates the degree of relative consumption inequality in both years and possibly more so in 1976 than in 1970. Yet, in spite of this serious shortcoming, the SUSENAS data may shed some light on the magnitude of relative inequality and the direction of change. The following analysis deals exclusively with consumption data as reported by the Surveys and does not attempt to reinterpret the results in the light of the above caveat. 2.15 Table 3 shows the reported changes in the proportion of total consumption expenditure generated by the bottom 40%, the middle 40% and the top 20% of the population. Two points are worthy of note. First, by interna- tional standards the distribution of consumption expenditure appears to be fairly typical: slightly less than 20% of total expenditure is generated by the bottom 40% of the population and slightly more than 40% by the top 20% of the population. And, second, there does not appear to have been much change in the overall distribution of consumption between 1970 and 1976./1 If allowance were made for the varying proportions of expenditure allocated to food by the different groups, the apparent slight improvement in the share of the bottom 40% of the Indonesian population may be transformed into a deterioration because the deflator overstates the price increase experienced by the rich and hence understates their real consumption increase. It appears nonetheless safe to conclude that the bottom 40% of the Indonesian population has participated substantially in the benefits of recent economic growth. 2.16 The above conclusion, however, only indicates that the bottom 40% as a whole has benefitted; it is still possible that some groups within the bottom 40% may have suffered serious reductions in real consumption levels because of agricultural setbacks or changes in job opportunities. Accordingly, the attention is now focused on what has happened to the consumption levels of those comprising the bottom 40% of the population in more detail. 2.17 In Table 4 the absolute numbers of the population below several arbitrary cut-off levels of real per capita monthly consumption expenditure at 1976 prices are compared for 1970 and 1976. If Rp 3,000 is chosen as an appropriate cut-off point, the absolute number of the population spending less than the cut-off level has decreased by approximately ten million between 1970 and 1976; whereas over 50% of the population spent less than the cut-off level in 1970 less than 40% did so in 1976. Of the ten million, just over seven million were accounted for by changes in rural areas. /1 This does not necessarily mean that the distribution of income has remained unchanged. - 31 - Table 3: DISTRIBUTION OF PER CAPITA CONSUMPTION EXPENDITURE, 1970-76 /a Percentage of Consumption Expenditure Java Other Islands Urban Rural Urban Rural Indonesia Bottom 40% 1970 19.3 21.0 20.8 19.3 18.7 1976 17.4 22.0 20.2 20.6 19.3 Middle 40% 1970 38.4 39.4 34.3 39.0 38.4 1976 35.9 38.7 38.1 39.8 37.5 Top 20% 1970 42.3 39.6 40.0 41.7 43.0 1976 46.7 39.3 41.6 39.7 43.3 /a Calculated from Survey Sosial Ekonomi Nasional (SUSENAS), January-April 1970, and January-April 1976, Biro Pusat Statistik, Jakarta. Table 4: ABSOLUTE NUMBERS OF PEOPLE BELOW VARIOUS CUT-OFF LEVELS OF REAL MONTHLY CONSUMPTION EXPENDITURE PER CAPITA, 1970-1976 /a (in millions) Cut-off level of consumption expen- Number Below Cut-Off Level diture per capita Java Other Islands (1976 prices) Urban Rural Urban Rural Indonesia Rp 1,000 /b 1970 /c 0.2 (1.4) 3.6 (5.8) 0.1 (0.8) 1.2 (3.4) 5.0 (4.3) 1976 0.2 (0.5) 0.7 (1.0) 0.0 (0.1) 0.6 (1.4) 1.3 (1.0) Rp 2,000 /b 1970 /c 2.0 (14.6) 21.6 (34.9) 0.6 (8.2) 6.6 (18.6) 30.8 (26.1) 1976 0.8 (5.0) 14.2 (21.2) 0.3 (3.5) 4.0 (10.2) 19.3 (14.8) Rp 3,000 /b 1970 /c 4.8 (35.3) 39.7 (64.2) 1.6 (24.2) 14.4 (40.7) 60.4 (51.5) 1976 2.6 (17.5) 35.7 (53.1) 1.0 (11.8) 11.3 (28.4) 50.5 (38.8) Total Population /d March 1970 13.6 (100.0) 61.8 (100.0) 6.7 (100.0) 35.2 (100.0) 117.3 (100.0) March 1976 14.9 (100.0) 67.2 (100.0) 8.4 (100.0) 39.7 (100.0) 130.2 (100.0) /a Calculated from Survey Sosial Ekonomi Nasional (SUSENAS), January-April 1970 and January-April 1976, Biro Pusat Statistik, Jakara. /b Note that, because of urban-rural or interregional price differentials, the cut-off levels cannot be assumed to correspond to precisely the same level of real per capita consumption expenditure across locations and regions. /c The 1970 cut-off levels are Rp 367, 733, and 1,100 for Urban Java, Rp 352, 704 and 1,057 for Rural Java, Rp 401, 801 and 1,202 for Urban Other Islands and Rp 410, 820 and 1,230 for Rural other islands. The deflator is the Nine Essential Commodities Index reported in Table 1. 1A RoAd nn 1Q71 rncii ann 197A TnrArrPnan1 Ponulation Survev. - 32 - 2.18 If the cut-off level is then lowered to Rp 2,000 per month at 1976 prices, the reduction in the absolute numbers below this new level increases to eleven million. That is, whereas in 1970 26% of the population spent less than Rp 2,000 per month (at 1976 prices), less than 15% did so in 1976. As in the previous case, most of the reduction (ten million, in fact) occurs in the rural areas. 2.19 Finally, if the cut-off level is reduced further to Rp 1,000 per month at 1976 prices (so that we are now concerned with the bottom 5% of the population in 1970), the number below the cut-off level is just over five million in 1970 but falls to just over one million by 1976 or one percent of the 1976 population. Of the total reduction of nearly 4 million, 3.5 million were located in rural areas. Therefore, using this approach, SUSENAS data suggest that even the poorest of the poor improved their lot between 1970 and 1976. 2.20 An alternative approach may also be pursued. In this case, one examines the increase in real per capita consumption by decile within the bottom 40% of the population. The relevant results are reported in Table 5. The data suggest that all four deciles shared more or less equally in the benefits of growth. As before, however, the growth rates are higher in Java than in the other islands, and higher in urban areas than in rural areas. Thus, urban Java appears to have experienced the highest growth rate (over 5%), urban areas in the other islands and rural Java the next highest (around 4%), and rural areas in the other islands the lowest (below 4%). 2.21 The evidence is consistent, therefore, in suggesting that the rapid rate of growth attained by the Indonesian economy in recent years has contributed to a sizeable increase in real consumption for the vast majority of the Indonesian population including the very poor./1 This is a major achievement. It cannot be emphasized too strongly, however, that despite this achievement many Indonesians remain extremely poor. Table 5: AVERAGE ANNUAL GROWTH RATES OF REAL MONTHLY CONSUMPTION EXPENDITURE PER CAPITA FOR SELECTED GROUPS 1970-1976 /a Java Other Islands Urban Rural Urban Rural Poorest 10% 5.2 4.0 3.8 3.4 Poorest 20% 5.3 3.1 4.3 3.8 Poorest 30% 5.2 4.3 4.4 3.7 Poorest 40% 5.2 3.9 4.3 3.5 /a Calculated from Survey Sosial Ekonomi Nasional (SUSENAS), January-April 1970, and January-April 1976, Biro Pusat Statistik, Jakarta. The Nine Essential Commodities Price Deflator is used. See Table 1. /1 It is, of course, still possible that some members of society will have suffered declines in real income, since the data reported here only deal with group averages. - 33 - 2.22 Thus, while Table 4 suggests that the number of people below a real per capita consumption level of Rp 3,000 in 1976 prices has declined substan- tially over the six-year period, it also highlights the magnitude of the remaining poverty problems: in 1976 over fifty million Indonesians spent less than US$90 (at 1976 prices) on consumption items per year. Some Characteristics of the Poor 2.23 Information on the socio-economic background of the poverty groups is often essential for the design of appropriate poverty-alleviating policies. The following brief summary highlights some potentially important characteristics of the poor with regard to their geographic location, primary source of income, access to land and educational status. The analysis is focused on expenditure groups below the Rp 3,000 cut-off level (Table 4) in 1976; comprising the bottom 15% of the urban population and the bottom 45% of the rural population. 2.24 With respect to location, over 70% of the urban and rural poor are to be found in Java. As a point of reference, Java contains slightly more than 60% of the total Indonesian population. Within Java almost 20% of the urban poor in Indonesia and over 25% of the rural poor are found in Central Java; in East Java the corresponding figures are almost 25% and almost 30%. Thus, East and Central Java are the two provinces most severely affected by poverty as measured by per capita consumption expenditures. 2.25 Turning to primary source of income,/1 almost 85% of poor urban households derive their income solely from non-agricultural sources and very few households mix agricultural and non-agricultural activities. In rural areas, however, many poor households participate in non-agricultural activities. In fact, almost 45% of all households in rural areas derive some or all of their incomes from non-agricultural activities. This underlines the importance of non-farm employment for the maintenance and improvement of rural incomes. 2.26 For households deriving income from agriculture, there is some expectation that the amount of land which they are able to cultivate is an important determinant of income and hence consumption levels. This expectation is borne out only to a limited extent. A positive relationship is discernible between the area of land cultivated and per capita consumption expenditure for agricultural households with per capita expenditure up to Rp 10,000 per month. For example, the average landholding of families with per capita monthly consumption expenditures of less than Rp 1,000 was 0.64 hectares, while the average landholding for the Rp 7,500-Rp 10,000 was 1.41 hectares. /1 The remainder of this section is based on the 1976 Intercensal Population Survey. It is thought that this Survey underestimates consumption expenditure even more than the 1976 SUSENAS. Nevertheless, the Intercensal Population Survey still allows a reasonable ordering of the population by consumption level. For a general description of of the Survey see 1976 Intercensal Population Survey, Technical Report Series, Monograph No. 1, Organization and Methods, Biro Pusat Statistik, Jakarta. - 34 - 2.27 On the other hand, most households have a source of income aside from working their own land, and this represents an important means of redres- sing any income deficiency. Because of this, the amount of land cultivated does not necessarily appear to be an important determinant of the overall economic position of the bulk of agricultural households. The dispersion of agricultural households by per capita consumption level is wide within groups classified by area cultivated but similar among the groups. 2.28 Almost 58% of the households within each classification under 5 hectares report consumption levels between Rp 2,000 and Rp 4,000 per month and even for households cultivating more than 5 hectares 54% report per capita consumption in the same range./1 This result is not surprising given that the simple measure of size of area cultivated ignores the wide variations in land quality, types of crops, climatic conditions, irrigation practices, etc. But it does provide further evidence of the extent to which the well-being of rural households in Indonesia has become less connected with the size of individual landholdings and more dependent on access to off-farm employment opportunities in both agricultural and non-agricultural labor markets and the terms upon which such opportunities are offered. 2.29 It may also be expected that the ability to take advantage of changing economic opportunities - whether it be the exploitation of improved agricultural techniques or success in achieving higher earnings in non-agricul- tural sectors - is importantly dependent upon the level of education. Further- more the ability to finance, and hence the demand for education is also likely to be strongly related to the level of household income. This expectation is borne out quite comprehensively: there is a marked, positive relationship between the educational attainment of the head of the household and per capita consumption in both urban and rural areas. For example, in urban areas those who have completed their elementary education enjoy a level of per capita consumption over 10% higher than those who started but did not finish elementary school. The corresponding figure for rural areas is somewhat less than 10%. Similar increases are observed as one moves up the educational ladder. 2.30 The educational attainment of the poor is correspondingly low. In urban areas, over 30% of the poor had either never attended or not completed elementary school. A further 20% had completed their elementary education but had failed to attend or complete junior high school. In rural areas the situation is markedly worse; over 30% of the poor had not attended or completed elementary school, and a further 14% had failed to attend or complete junior high school. 2.31 Thus, the greatest concentration of the poor are located in East and Central Java. In urban areas they tend to be unemployed or engaged in non- agricultural activities. In rural areas, where the bulk of the poor are /1 As noted above, this section draws on the 1976 Intercensal Population Survey which is thought to have underestimated consumption levels. The consumption levels reported here, therefore, are not directly comparable to those drawn from SUSENAS. - 35 - to be found, many are not engaged in agriculture, and for those who are, land area operated is an important but not the sole determinant of income; secondary occupations are critical to many of the rural poor in enabling them to raise their consumption levels. Finally, inadequate education is a distinctive characteristic of the poor, especially in rural areas. Patterns of Consumption and Calorie Intake, 1970-76 2.32 The concern with patterns of consumption and calorie intake arises primarily because of the health problems caused by inadequate diet. These are especially prevalent among children and pregnant or lactating women, and are generally regarded as a major cause of Indonesia's high rate of infant mortality./1 Accordingly, Table 6 presents a comparison of the 1970 and 1976 consumption patterns and calorie intakes for both the total population and the bottom 40%./2 2.33 Table 6 shows that, with one important exception, the allocation of expenditure on food has remained more or less constant in percentage terms. The important exception is urban Java where the share of expenditure allocated to food falls from over 63% in 1970 to only slightly more than 54% in 1976. The bottom 40% of the population in urban Java, however, maintained its share of expenditure on food throughout the period, so that the decline observed for the total urban population on Java is actually confined to the upper 60% of the population. /1 See "Indonesia: Appraisal of a Nutrition Development Project," World Bank Report No. 1318-IND, 1977. /2 The reader is again alerted to the strong probability of consumption under-reporting in both SUSENAS. Aggregates are reported here more as indications of trends than of absolute levels and all conclusions on consumption patterns and calorie intake levels should be regarded as highly tentative. With regard to consumption of the lowest 40%, under- reporting is thought to have been less serious than at the higher con- sumption levels. With regard to calorie count it is of some comfort to know that: major food staples such as rice and maize do not appear to have been under-reported. There is broad consistency between reported con- sumption of those items and supply. There may still be consumption under-reporting, however, for other important food items such as fruits and vegetables. - 36 - Table 6: PATTERNS OF CONSUMPTION EXPENDITURE AND CALORIE INTAKE, 1970-1976 /a (in percentages) Java Other Islands Urban Rural Urban Rural 1970 1976 1970 1976 1970 1976 1970 1976 Total Population Food 63.5 54.2 72.4 70.6 66.4 63.8 72.9 73.6 (Cereal & cereal products) (25.6) (17.6) (36.3) (34.8) (24.0) (22.5) (30.3) (32.4) Tobacco, betelnuts & alcohol 6.4 4.9 6.0 6.0 7.3 6.1 7.0 5.5 Non-food 30.1 40.9 21.6 23.4 26.3 30.2 20.1 20.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Daily calorie intake /b 1,591 1,652 1,872 1,841 2,171 2,393 1,925 2,124 Bottom 40% Food 70.9 70.1 75.4 78.6 73.0 71.9 77.1 80.1 (Cereal & cereal products) (40.0) (37.5) (42.6) (45.0) (36.2) (34.8) (42.2) (42.3) Tobacco, betelnuts & alcohol 4.9 5.4 5.3 4.9 6.4 5.3 5.8 4.5 Non-food 24.2 24.6 19.3 16.5 20.5 22.9 17.1 15.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Daily calorie intake /b 1,230 1,335 1,470 1,443 1,712 1,700 1,530 1,513 /a As calculated from Survey Sosial Ekonomi Nasional (SUSENAS), January-April 1970 and January-April 1976, Biro Pusat Statistik, Jakarta. /b Calculated by mission on the basis of consumption quantities reported by SUSENAS and standard FAO conversion ratios. The national average daily calorie intake calculated in this manner (1,877 for 1970 and 1,940 for 1976), is 150-250 calories lower per capita than the national average calculated on the basis of national food balance sheets for both years. This may be a measure of the consumption under-reporting by SUSENAS. National food balance sheet data suggest that total food availability in 1976 was approximately equal to the WHO/FAO recommended minimum average daily per capita intake of 2,150 calories. - 37 - 2.34 For the bottom 40% of the population, calorie intake appears to have increased only in urban Java; all other areas show a very small decline (less than 2%) over the six-year period. Thus, despite rising levels of real per capita consumption expenditure, the bottom 40%, except in urban Java where 1970 calorie intake was extremely low, does not appear to have increased its intake of calories. It is possible that the expected positive relationship between consumption expenditure and calorie intake has not materialized because of a change in relative prices and related shifts in food consumption patterns towards items that are more expensive per calorie of food energy. As noted earlier, food prices increased more than non-food prices (see Table 1). Moreover, the price of basic foods (rice, maize, cassava) increased more rapidly than that of higher quality foods (meat, fish, milk, eggs, etc.). Consumers may, therefore, have been reacting not only to increasing real consumption expenditures, but also to changing relative prices in such a way that calorie intake has remained more or less constant. 2.35 It is also possible that the Nine Essential Commodities Index under- states the food price increases actually experienced by lower income groups and that Table 5 consequently overstates the real consumption increases of the bottom 40%. The SUSENAS does provide some limited evidence that this may have been the case. But it is not possible on the basis of the limited available evidence to determine whether such price differences reflect voluntary shifts towards higher quality grades and preferred foods or genuine food price index differentials between various income groups. For the purpose of this analysis it has been assumed that such higher price increases as may have been experienced by lower income groups reflect consumer preferences. 2.36 In spite of the possibility of calorie intake under-reporting (see footnote b, Table 6) it is difficult to avoid the conclusion that, compared to the WHO/FAO recommended average daily intake of 2,150 calories, the observed Indonesian intakes of the bottom 40% are very low and indicative of serious national deficits. Summary 2.37 The two SUSENAS analyzed in this chapter suggest the following broad conclusions for the period 1970 to 1976: (a) real consumption expenditures appear to have increased in both urban and rural areas, especially in Java; improvements appear to have been more impressive in urban areas than in rural areas; (b) even the lowest income groups in the Indonesian society appear to have benefitted from recent economic growth; (c) despite these achievements, over fifty million Indonesians spent in 1976 less than US$90 (at 1976 prices) on consumption items; (d) the majority of the poor in urban and rural areas are located in East and Central Java; the poor are also characterized by low levels of educational attainment. - 38 - CHAPTER 2: TRENDS IN EMPLOYMENT OPPORTUNITIES AND REAL WAGE RATE DEVELOPMENTS 2.38 Analysis of the data from SUSENAS for the period 1970 to 1976 conducted in Chapter 1 suggested that consumption expenditure had increased in real terms even for the poorer segments of society. In this chapter the focus is on the extent to which these increases can be attributed to improve- ments in job opportunities and wage rates. This approach is based on the observation that for a large number of Indonesians, especially the poor, labor is the prime or only factor of production at their disposal and is, therefore, the major determinant of income. 2.39 It is useful to start with a brief survey of the more aggregative data on population, labor force, employment and unemployment in order to provide an overall perspective of recent developments. The presentation then turns to more detailed analyses of employment and wage rates in rural and urban areas which draw more heavily on individual case studies of the effect on labor demand of changing technology and institutional structures especially in agriculture. The analysis is hampered throughout by the absence of relevant data, and the lack of intertemporal comparability of the data that are available. The conclusions, therefore, especially with respect to developments in real wage rates but also with respect to labor force and employment trends should be considered indicative rather than definitive. Population, Labor Force and Employment 2.40 The March 1976 Intercensal Population Survey indicates a total population of 131 million (see Table 7) of which 82 million, or just over 60%, were living in Java (including Madura). During the 1961-71 period, the annual rate of population growth had increased to 2.1%, considerably above the pre-war figure of about 1.5%. The Intercensal Population Survey, however, suggests a slight decline in the growth rate to 2% for the period 1971-76. 2.41 The moderation in the rate of population growth is associated with significant declines in fertility, especially on Java and Bali, between the late 1960s and mid-1970s, much of which (over 60%) is attributed to changes in marital fertility and the remainder to changes in the proportion of the female population currently married. At the same time, an offsetting decline in mortality between the years 1971-76 increased the expected life span at birth by about five years for both sexes to around 47.5 years for females and 43.0 years for males. While this unusually rapid decline in mortality may reflect, at least in part, a recovery from the possible deter- ioration in health conditions during the early 1960s, much of the evidence of demographic change on Java and Bali is consistent with typical patterns of countries entering the early stages of a transition to lower fertility and mortality rates. In the other islands, the evidence does not yet indicate that the transition period is far advanced. - 39 - 2.42 Both the level and the rate of urbanization of the population remain relatively low. Slightly less than 18% of the population resided in areas designated as urban in 1976, and since 1961 annual urban growth appears to have averaged less than 3% in Java and slightly more than 4% in the other islands. Statistics based on a mutually exclusive categorization of rural and urban, however, probably fail to reveal the full extent of the "urbanizing" process in such a densely populated area as Java. The spread of non-farm activities and the increase in daily or short-term commuting make a sharp distinction between urban and rural increasingly inappropriate for much of Java./1 2.43 With respect to inter-island migration, population movements between Java and the other islands are relatively small and have been decreasing. In the five-year period 1961-66, net migration from Java amounted to 300,000 persons; the corresponding figure for the period 1971 to 1976 was less than 75,000. The magnitude of the net flows relative to the size of the population involved indicates that migration has not significantly affected the distribu- tion of population between Java and the other islands over the past one and a half decades. 2.44 Table 7 presents data on labor force and employment for the period 1971 to 1976 which are thought to be comparable with respect to both concept and season. Labor force growth has been pronounced, averaging 4.7% per annum. In part, this reflects the changing age structure of the population: the annual rate of growth of the population in the age group 15-64 was 2.7% between 1971 and 1976 compared to a figure of 2.0% for total population. In addition, however, labor force participation rates within age groups have increased. As a result, the overall participation rate of the population aged 10 and above increased from 49.9% in 1971 to 54.9% in 1976. 2.45 Similar increases are observed for employment, the average annual rate of increase over the five years being 4.7%. The vigorous growth in employment has, therefore, largely contained growth in open unemployment. The number of unemployed workers is estimated to have increased by 277,000, while the unemployment rate increased from 2.2% in September 1971 to 2.3% in October 1975. In the urban areas the increase was more marked from 4.8% to 6.4% over the same period. Open unemployment, however, is not a very meaningful indicator of the general employment situation in Indonesia, because movements in and out of the labor force are as important as movements in and out of employment. 2.46 Nevertheless, the significance of unemployment cannot be overlooked since it tends to be concentrated in particular groups. For example, 50-75% of the total unemployed in both urban and rural areas are accounted for by unemployed workers under 25 years of age, which suggests that most of the openly unemployed are entering the labor market for the first time. /1 See, for example, Graeme Hugo, "Circular Migration," Bulletin of Indonesian Economic Studies, Vol. XIII, No. 3, November 1977, and Bisrat Aklilu and John R. Harris "Migration, Employment and Earnings in Indonesia," Boston University, 1977. - 40 - 2.47 Although measures of underemployment could perhaps give a better indication of labor surplus than measured open unemployment, precise figures are not presented here. It is sufficient to note that there are large seasonal movements in the size of the labor force, an unknown degree of temporary unemployment and many people who work less than a full working week, particularly in the rural areas. Data limitations, however, prevent any statement as to whether a measure of underemployment would have shown an increase or decrease during the 1971-76 period. Table 7: POPULATION, LABOR FORCE AND EMPLOYMENT, 1971-76 (In '000) Annual percentage/e Sep 1971 /a Oct 1976 /b growth rate (%) Population 119,233 131,797 2.0 Labor force 40,369 51,014 4.7 Participation rate (%)/c 49.9 54.9 - Employment 39,474 49,842 4.7 (i) Urban 5,796 7,000 3.8 (ii) Rural 33,678 42,842 4.8 Unemployment rate (%)/d 2.2 2.3 - /a Population census 1971, Series C, Table 2 (adjusted for geographical coverage) Biro Pusat Statistik, Jakarta, 1972. /b Population is estimated by applying growth rates observed between September 1971 and March 1976 to the March 1976 Intercensal Popula- tion Survey (SUPAS) figures, separately for Java/other islands and urban/rural. Labor force and employment figures are based on labor force participation rates from the National Labor Force Survey (SAKERNAS) applied to population figures calculated as indicated. /c Labor force as a percentage of population aged 10 and above. /d The difference between labor force and employment as a percentage of labor force. /e Labor force and employment growth rates for the period September 1971- October 1976 may have been somewhat lower than indicated in Table 7 and in the text of this report. For a technical explanation of this possibility and a calculation of alternative growth rates based on higher (adjusted) labor force and employment figures in the base period (September 1971) refer to "Employment and Income Distribution in Indonesia", World Bank Report No. 2378-IND, dated February 20, 1979, Tables 1.4 (page 11) and 1.6 (page 14) and Appendix page 3. - 41 - 2.48 The data on the sectoral composition of employment reported in Table 8 reveal that the rapid growth in employment was also associated with a shift from agricultural to non-agricultural activities. The share of agri- culture in total employment decreased from about 66% in 1971 to about 62% in 1976 implying a major expansion in non-agricultural employment. In spite of its declining share in total employment, agriculture has remained by far the largest single source of additional employment during the period 1971-76, accounting for 46% of incremental employment. The capacity of the agricultural sector to absorb additional labor has remained surprisingly high during that period in spite of the widely reported introduction of labor displacing cultivation and harvesting techniques. It should be stressed, however, that the annual rates of employment growth shown in Table 8 should be interpreted with caution. Because of the many conceptual and measuring problems, they are at best indicative of approximate orders of magnitude. A large part of the explanation for the high employment growth in agriculture lies undoubtedly in the tremendous expansion of rice production efforts during this period through irrigation (rehabilitation and expansion) and the rapid spread of high-yielding varieties and fertilizer use. In Indonesia, rice is by far the most labor- intensive of the major food crops, both in terms of man-day inputs per hectare cultivated and per ton produced. It should furthermore be noted that labor productivity in agriculture did apparently not increase. If it had, the capacity of the sector to provide additional employment would presumably have been lower. - 42 - Table 8: SECTORAL COMPOSITION OF EMPLOYMENT AND LABOR PRODUCTIVITY, 1971-76 September 1971 /a October 1976 /b Annual Employ- Labor Employ- Labor growth ment produc- ment produc- rate of share /c tivity/d share /c tivity/d employment Agriculture, forestry, fishing 65.9 100 61.8 98 3.4 Mining & quarrying 0.2 11,742 0.2 15,292 4.9 Manufacturing 7.8 163 8.4 213 6.2 Construction 2.0 305 1.7 600 1.9 Electricity, gas, water 0.1 871 0.1 2,192 -6.8 Transport, storage, communication 2.4 276 2.7 311 6.7 Trade, banking, insurance 11.2 } 201 14.5 }238 10.2 Services 10.4 } 10.6 } 4.9 All sectors 100.0 165 100.0 195 Employment ('000) 39,474 49,842 4.7 /a Population Census, 1971, Series C, Table 7, Biro Pusat Statistik, Jakarta, 1972. Lb Based on Intercensal Population Survey, 1976 and the National Labor Force Survey 1976, as explained footnote b, Table 7. j In calculating employment share, the category "unknown" was assumed to have the same sectoral composition as the rest of the employed. /d Labor productivity is set at 100 for agriculture in 1971. The indices for labor productivity should be viewed as approximate orders of magni- tude only as both sectoral employment and sectoral value added data in constant prices are of questionable accuracy. 2.49 About 54% of the total increase in employment occurred in non- agricultural sectors. The rapid growth of employment in trade and transport, especially in rural areas (see Table 9) may be related to the substantial increases in agricultural production and incomes during that period. Manufac- turing employment (including enterprises of all sizes) also increased rapidly (6.2%). The low level of industrialization in Indonesia, however, remains apparent in the observation that in 1976 manufacturing employment still amounted to less than 9% of total employment. 2.50 Table 8 also contains information on labor productivity by sector. While average labor productivity cannot, of course, be equated with returns to labor, it is, nevertheless, interesting to note that apart from mining and quarrying, the sectors which have expanded most rapidly in terms of employment exhibit higher levels of average labor productivity than agri- culture and have improved their position relative to agriculture during the period. - 43 - Employment and Wage Rates in Rural Areas 2.51 The agricultural sector remains the most important source of rural employment: in 1976 approximately two-thirds of rural households relied on agriculture as a major source of income. Table 9 reveals that between September 1971 and October 1976 the absolute numbers engaged in agriculture at least part of the time grew at a rate of 3.4% although in relative terms the share of agricultural employment in total rural employment declined from 75% to 70%. 2.52 The existence of two surveys in 1976 (the Intercensal Population Survey in March and the National Labor Force Survey in September-December) allows some assessment of the significance of seasonality in Indonesian agriculture. 3etween March and October 1976 /1 agricultural employment decreased by about six million workers or about 17% of the March total. The decline in total rural employment was somewhat lower (five million) while urban employment remained more or less constant (see Table 12). Thus, the peak demand for labor in agriculture is met primarily by an expansion in the labor force rather than by a re-allocation of the slack season labor force. From the available evidence, however, it is difficult to determine whether the expansion is supplied primarily by family labor (i.e., by house- holds operating their own land) or by hired labor (especially from landless households). Data from the 1971 Population Census suggest that 70% to 75% of the increment in the labor force required for the cropping season com- prises unpaid family workers. Village studies, on the other hand, indicate as much as 85% of total wet season labor input being supplied by hired labor./2 The most reasonable interpretation is that the increase in the return to labor during the peak season draws forth an increased supply of labor from both operating and landless families. Either way, the data attest to the high degree of responsiveness of the labor force to seasonal changes in labor market conditions. /1 October 1976 employment and labor force figures used in text and tables represent averages for the period September-December 1976. /2 William L. Collier and Sajogyo: "Employment Opportunities Created by the High Yielding Rice Varieties in Several Areas on Java," Research Note No. 8, Agro-Economic Survey, Bogor, June 1972. - 44 - Table 9: SECTORAL COMPOSITION OF EMPLOYMENT IN RURAL AREAS, 1971-76 (In '000) Annual growth rate (%)/ Sep 1971/a Mar 1976/b Oct 1976/b Sep '71-Oct '76 Agriculture, forestry, fishing 24,364 (25,371) 35,729 30,065 3.4 Mining & quarrying 46 (48) 23 97 14.8 Manufacturing 2,288 (2,383) 2,991 3,291 6.5 Construction 451 (470) 664 520 2.0 Electricity, gas, water 11 (11) 11 7 -8.5 Trade, banking, insurance 2,691 (2,802) 4,556 5,141 12.6 Transport, storage, communication 405 (422) 566 733 11.4 Services 2,084 (2,170) 2,882 2,987 6.5 Unknown 1,337 (0) 669 0 - Total 33,678 48,092 42,842 4.8 /a Population Census, 1971, Series C, Table 7 (adjusted for geographical coverage), Biro Pusat Statistik, Jakarta, 1972. Figures in parentheses include an adjustment on the assumption that the sector distribution of the category "unknown" is the same as that of the rest of employment. /b Based on the Intercensal Population Survey, 1976 and the National Labor Force Survey 1976, as explained in footnote b, Table 7. /c Growth rates calculated on the assumption that the sector distribution of the category "unknown" is the same as that of the rest of employment. 2.53 Results for 1976 from the Intercensal Population Survey and the National Labor Force Survey also give some indication of hours worked per week by those engaged for at least two days in agriculture in the week preceding the surveys. In the slack season (September-December), 13.7 million workers (44% of total agricultural employment) were engaged for more than 35 hours per week; for the busy season (March) the corresponding figure is 21.2 million (57%). At the other end of the scale, 11.9 million (38.5%) worked less than 25 hours per week in September compared to 10.0 million (27%) in March. The figures indicate that approximately the same number of workers is employed in agriculture for short periods of time (less than 25 hours per week) in both the busy and the slack season and that the increase in the seasonal labor input results from an expansion in the numbers working a full week (de- fined as more than 35 hours). - 45 - 2.54 Within the agricultural sector, important changes have been occurring in recent years which have affected the level of labor demand in a number of different ways. On the positive side, the area cultivated in Indonesia expanded from 14.5 million ha in 1963 to 16.4 million ha in 1973. Almost the entire additional area, however, and, therefore, any potential employment impact, was outside Java. In addition, the area harvested on irrigated and wet land has increased between 1968 and 1976 at a rate of 1.2% p.a. on Java and 2.0% on the other islands,Il and the area planted to new varieties of rice has expanded rapidly from 2.5% of the country's total rice land in 1968/69 to over 40% in 1974/75, although the rate of expansion has slowed since then./2 All these factors can be expected to have increased the demand for agricultural labor. Effects of Institutional and Technological Change on Rural Employment 2.55 While the expansion of cultivated and harvested area together with the strong emphasis on rice have increased agricultural employment, a number of institutional and technological changes were, and still are, taking place which lead to reductions in the demand for agricultural labor. One such change is the switch from the bawon or open-harvest system, in which all- comers may participate, to tebasan or contract harvesting where teams of workers under the direct control of a penebas or middleman handle the harvest operations./3 By itself this need not lead to a reduction in total labor input but may reduce the number finding employment at harvesting time. As such, the process may be viewed as a transitional phenomenon related to the increasing specialization of the labor force. However, an associated techno- logical change, the switch from the ani-ani to the sickle, could have major implications for labor demand at harvesting. Unfortunately, neither the magnitude of the switch to tebasan harvesting nor the extent to which the sickle is used can be established with any degree of certainty. What can be concluded is that such changes are usually associated with modernization and productivity growth in agriculture and are, therefore, likely to become more pervasive. 2.56 Other technological changes have also been observed to varying degrees. Of these, the change in rice-milling techniques, begun in the late 1960's and continued into the 1970's, is the most widely reported. The use of small mechanical rice mills is generally recognized to be more efficient than hand pounding even when the labor of the pounder, usually a woman, is thought to be costless. This reflects the higher extraction rate and better quality of rice produced by mechanical units. For the same crop, however, /1 "Indonesia: Irrigation Program Review," World Bank Report No. 2027a-IND, dated October 16, 1978. /2 Adelita Palacpac, World Rice Statistics, IRRI, April 1977. /3 William L. Collier, Gunawan Wiradi and Soentoro, "Recent Changes in Rice Harvesting Methods," Bulletin of Indonesian Economic Studies, Vol. IX, No. 2, 1973. - 46 - rice mills require only a fraction of the labor input needed for hand pounding. To the extent that households now choose to have their padi crop mechanically milled rather than hand pounded by family members, the emer- gence of rice mills is to be welcomed; the exercise of choice is always an indicator of household preference. To the extent, however, that the choice is between hand pounding by non-family, female labor and mechanical milling, the switch to milling represents a loss of employment opportunities for women. An important advantage of the small mechanical rice mill is that it permits quality milling in rural areas near consumption areas. This contributes to rural industrialization and reduces overall transport costs. 2.57 The potentially most important change in techniques is the slowly emerging use of hand tractors for land preparation. Outside Java, in areas where labor supply may become a constraint at certain critical times of the season, the use of tractors permits an increased area to be cultivated, whereas in Java, where land availability is more or less fixed, the use of tractors becomes feasible only in such circumstances as, for example, where another crop can be fitted in by using tractors or where a farmer has access to sufficient land to ensure reasonably full utilization of the tractor. The use of a hand tractor requires about 12 man-days for land preparation per hectare compared to 55 man-days if the process is entirely manual./l Although not presently widespread, the use of tractors is almost certain to become more extensive in the future especially if contract plowing proves feasible. The recent (November 1978) devaluation of the rupiah, however, should, at least temporarily, slow down the rate of mechanization which will help to smooth the process of transition in rural areas. 2.58 A further development which, although not necessarily affecting labor demand, may have serious implications for income distribution is the increasing incidence of reports of high rates of land sales, often to people outside the village. The overall size distribution of farms changed only marginally during the 1963-73 period, though the degree of aggregation in such statistics may well conceal divergent trends. It is also possible that high rates of land sales may have become more prevalent after 1973, particularly as the growth and distribution of incomes was affected by rapid economic growth in the following years. 2.59 Some reports of high rates of land sales originate from areas planted to the high yielding rice varieties. Although other factors are undoubtedly relevant, the risks associated with the high yielding varieties and their susceptiblity to pests and disease may be adding to the pressures to sell. It is believed that this process may be contributing to an increasing concentration of land ownership in some areas. It is suggested that a major effort to document these changes and an analysis of their effects on rural society and agricultural productivity are urgently needed in preparation for appropriate remedial policies. /1 R.A. Morris. "The Potential Impact of Mechanical Land Preparation in the Indonesian Smallholder Rice Production Sector," IRRI/IPI, LP3, Bogor, 1975. - 47 - 2.60 As a result of the various institutional and technological changes in agriculture and the ever increasing pressure on land, especially on Java, particular groups are undoubtedly experiencing severe hardship and rural households in general are becoming increasingly dependent on participation in labor markets to provide additional sources of income. A crucial issue, therefore, is the degree to which the expansion in non-farm rural employment /1 reflects an expansion in the demand for non-agricultural labor and rising real wage rates or an attempt by displaced workers to secure at least some income in a situation of declining real wages. 2.61 Unfortunately, data on rural wages are extremely scarce; some series are, however, reported in Tables 10 and 11. Real wages for permanent workers on rubber estates in Java stagnated while those for workers in Javanese tea estates increased substantially in the period 1969-75. In North Sumatra, real wages increased noticeably in both rubber and tea estates over the same period. Real wages for two agricultural activities outside the estates sector are also shown in Table 10. 2.62 Using the retail price of rice as deflator, real wages in the rural sector have risen since the late 1960's but not continuously. Some of the variability in these wage indices can be attributed to fluctuations in the price of rice, and it may not be appropriate to use the rice index as a deflator in this case because wages are not spent exclusively on rice. But since the retail price of rice increased more rapidly than the prices of other commodities,/2 the figures reported in Table 10 probably understate the true increase in real wages. The sample, however, is extremely small and even within the sample not all villages experienced increasing real wages for all activities., 2.63 The Kabupaten public works program (INPRES) provides a further source of indirect information on wages, which are presented in Table 11. Local offi- cials are required to estimate prevailing wage rates for budgeting purposes. Thus, although the reported wages do not necessarily correspond to any wages actually paid, they can be expected to reflect general trends in local wage levels. The pattern revealed in this series for 1971 to 1977 suggests rising real wages in the rural areas of Aceh and West Sumatra, East Nusa Tenggara, Central, South and Southeast Sulawesi and throughout Java but declining real wages in most of the other provinces except those in Kalimantan for which data were not available. /1 From Table 9, of the total increase in rural employment between September 1971 and October 1976 of 9.2 million, 51% was in agriculture, 10% in manufacturing, 25% in trade and 9% in services. /2 For example, the rice component of the Nine Essential Commodities Price Index increased by a factor of 3.38 between 1971 and 1977 whereas the overall index only increased by a factor of 3.01. - 48 - Table 10: INDICES OF REAL WAGES IN RURAL AREAS, 1969-77 1969 1970 1971 1972 1973 1974 1975 1976 1977 Estates /a Java: Tea 100 162 175 176 136 151 183 - - Rubber 100 100 100 101 93 89 100 - - N. Sumatra: Tea 100 114 117 136 124 129 140 - - Rubber 100 140 113 132 119 102 120 - - Selected Agricultural Activities in Java /b Hoeing 100 96 112 109 117 133 140 138 125 Weeding 100 102 101 97 108 123 119 122 110 /a Earnings calculated from "Wages Paid on Estates 1966/75," Biro Pusat Statis Jakarta. For Java nominal wages are deflated by the 12 Food Articles PricE Index in Rural Markets of Java and Madura. The Cost of Living Index for Medan is used for North Sumatran wages. /b Benjamin White "Political Aspects of Poverty, Income Distribution and its Measurements: Some Examples from Rural Java" (draft), Agro-Economic Survey, Bogor, 1977. The data for hoeing and weeding are unweighted averages for six Javanese villages deflated by the retail price of milled rice. - 49 - Table 11: MONEY AND REAL DAILY WAGES IN RURAL AND URBAN AREAS FOR UNSKILLED CONSTRUCTION LABOR IN THE INPRES KABUPATEN/KOTAMADYA PROGRAM, 1971/72 - 1977/78 (In Rp) RURAL UR BAN Real Real Nominal daily wages wages /a Nominal daily wages wages /b 1971/72 1977/78 1977/78 1971/72 1977/78 1977/78 Aceh 160 501 189 175 425 151 N. Sumatra 293 514 .. 258 483 161 W. Sumatra 182 482 220 183 358 121 Riau 320 630 273 250 450 184 Jambi 350 560 253 250 500 209 S. Sumatra 262 419 149 250 425 140 Lampung 183 400 149 200 500 172 Bengkulu 250 467 169 250 500 Jakarta .. .. .. 260 400 131 W. Java 155 476 165 150 531 188 C. Java 95 319 111 94 333 130 Jogjakarta 86 256 89 85 250 84 E. Java 117 418 145 111 400 148 Bali 123 328 115 W. Nusatenggara 130 350 124 E. Nusatenggara 94 307 120 W. Kalimantan 325 717 .. 300 700 275 C. Kalimantan 370 601 .. 350 600 272 S. Kalimantan 194 422 .. 250 500 175 E. Kalimantan 375 .. 375 N. Sulawesi 297 505 216 250 525 182 C. Sulawesi 138 475 213 .. S. Sulawesi 133 349 147 112 350 140 S.E. Sulawesi 100 338 127 .. Maluku .. 500 .. 500 179 W. Irian .. 533 .. .. /a At 1971/72 prices. Nominal wages deflated by price indices (Nine Essential Commodities) in rural markets. /b At 1971/72 nominal wages deflated by Cost of Living Indexes for selected cities in the various provinces. Source: Data supplied by BAPPENAS. - 50 - 2.64 Despite the weakness of the data, it is significant that the various series reveal no general tendency for decreased real wage levels in rural Java. From the evidence at hand, it appears that the rapid increase in employment of recent years especially in non-agricultural sectors has been accomplished with no downward trend and possibly an upward trend in real wages, even in the densely populated areas of rural Java. During the 1971-76 period, the demand for labor in non-agricultural activities has apparently expanded suffi- ciently to maintain or even increase real wages, despite increasing partici- pation rates and the structural changes in agriculture described above. But, as will be argued in Part III, one cannot confidently expect that these com- paratively favorable developments in rural labor markets will continue. 2.65 As a footnote to the analysis of real wages in rural areas, it should be noted that despite the lack of a generalized trend over time, there have been quite sharp movements in real wages from year to year. To a large extent, these fluctuations have been due to lags in the adjustment of wages to price changes. But the compressibility of real wages even in the short term suggests that this adjustment is not automatic, and that if the growth in demand for labor were to slacken, real wages could be lowered permanently. This consider- ation is perhaps of renewed relevance since the devaluation of the rupiah against the US dollar, as the period is likely to be characterized by renewed price increases, despite the short-term deflationary impact of the devaluation. Employment and Wage Rates in Urban Areas 2.66 Urban employment has grown at a slower rate than rural employment between 1971 and 1976, 3.8% compared to 4.8% p.a. Table 12 suggests that there has been remarkably little change in the sectoral pattern or urban employment over the five-year period, and from the March-October comparison in 1976, there appears to be relatively little seasonal change in the absolute level of urban employment, although agricultural employment expands relative to manufac- turing and trade. .2.67 There is some evidence that the lower growth rate in urban manu- facturing employment (5%) compared to that in rural areas (6.5%) may reflect the slower rate of employment increases in large-scale enterprises which are located primarily in urban areas and which received the bulk of new industrial investment. Although the data from the 1971 and 1975 Surveys of Manufacturing L are not wholly comparable they suggest that the annual growth in employment in enterprises with more than five employees was about 5.5% in that period. /1 "Survey of Large and Medium Scale Manufacturing Establishments" 1971 and 1975, BPS, Jakarta. - 51 - Table 12: SECTORAL COMPOSITION OF EMPLOYMENT IN URBAN AREAS, 1971-76 (in '000) Annual growth rate (%)/c Sep 1971/a Mar 1976/b Oct 1976/b Sep '71-Oct '76 Agriculture, forestry, fishing 600 (629) 915 749 3.5 Mining & quarrying 44 (46) 22 23 -12.7 Manufacturing 661 (693) 685 888 5.0 Construction 289 (303) 459 329 1.6 Electricity, gas, water 27 (28) 24 21 -4.8 Trade, banking, insurance 1,539 (1,613) 1,948 2,112 5.4 Transport, storage, communication 514 (539) 568 604 2.3 Services 1,856 (1,945) 2,387 2,274 3.1 Unknown 266 (0) 210 0 - Total 5,796 7,218 7,000 3.8 /a Population Census, 1971, Series C, Table 7, Biro Pusat Statistik, Jakarta, 1972. Figures in parentheses are calculated on the assumption that the sector distribution of the category "unknown" is the same as that of the rest of employment. /b Based on Intercensal Population Survey 1976 and the National Labor Force Survey 1976. /c Growth rates calculated on the assumption that the sector distribution of the category "unknown" is the same as that of the rest of employment. 2.68 The great diversity in systems of wage payments, especially the practice of relating a significant proportion of wages to the employee's family size, and the general dearth of information make quantification of wage levels, trends and differentials extremely difficult. Some broad indi- cation of wage levels, skill differentials and urban-rural differences can be derived from the wage rates used in the budgeting exercises for the INPRES Kabupaten public works program. This source indicates wide inter-provincial differences in nominal wages for unskilled construction labor but relatively small rural-urban differentials within provinces. The inter-provincial pattern is generally in line with what might be expected on economic grounds: wage levels are higher in Sumatra and Kalimantan than in the densely populated Javanese provinces, and within Java wage levels are lower in Central Java and Jogjakarta. The absence of an urban-rural differential is also consistent with the observed high degree of labor mobility and the relative absence of institutional influences in the labor market. The comparisons suggest that, as might be expected, urban-rural movements are accommodated much more easily - 52 - than inter-provincial movements./l With respect to skill differentials, skilled workers (masons, carpenters, foremen) receive wages 40-60% higher than those of the unskilled in construction. Similar differentials are also found in other sectors./2 2.69 Returns to self-employed labor and the wages earned by labor in small enterprises are not dissimilar to those paid in larger establishments. A 1973 study of hawkers in Jakarta found that net daily earnings varied between Rp 100 and more than Rp 5,000./3 Over 75% had an income of less than Rp 500, and almost 95% an income of less than Rp 1,000 a day. Average daily earnings were Rp 425, which is not unlike the daily wages earned by unskilled workers in large-scale enterprises./4 Similarly, the Jakarta Informal Sector study of 1975 indicates remarkably little variation in sectoral wage rates paid by small establishments, with average daily wages being comparable to those paid by large-scale enterprise./5 This is to be expected in a labor market charac- terized by high mobility and an absence of institutional impediments. 2.70 With respect to trends in real wages, data emerging from the Kabupaten public works program (Table 11), indicate increasing real wages in Java except for Jakarta and Jogjakarta and declining real wages for Sumatra and Kalimantan. A comparison /6 of changes in real wages for the lowest paid workers in 16 selec- ted large-scale enterprises for the period 1973-77 shows increases in real wages of up to 30% for six enterprises while ten show decreases of up to 30%, and in one case more than 50%. Real wages cannot be said to have increased or decreased on the basis of available evidence. The wide range of the observed trends suggests that wage rate adjustments in a period of extremely rapid inflation occur at different rates in different establishments. /1 Technological advances in transport, especially the emergence of the Japanese minibus, have undoubtedly increased labor mobility in Java, and hence the degree of market integration. /2 See Proyek Bersama, Results of a Survey 1973-74 undertaken by ILO and the Department of Manpower, Transmigration and Cooperatives. /3 "Hawkers in Jakarta," Volume I: Literature Study and Hawkers Sample Survey, Atma Jaya Research Center, Jakarta, 1976. /4 Proyek Bersama, op cit. /5 "The Jakarta Informal Sector," Hazel V.J. Moir, National Institute of Economic and Social Research (LEKNAS), Jakarta, 1977. /6 "Employment and Income Distribution in Indonesia", World Bank Report No. 2378-IND, dated February 20, 1979, Table 3.8, p. 64. - 53 - 2.71 Observations on wages of the lowest-paid workers, however, fail to give any indication of changes in the overall quality of the urban labor force due to skill acquisition. Results of one small survey suggest that, despite low literacy rates, scarcity of skills in general was not a constraint on the maintenance and expansion of industrial production./1 On-the-job training for periods of 6-9 months ensured an adequate supply of skilled labor, at least at the lower levels. Large-scale enterprises, however, reported a scarcity of supervisory and middle-level managerial personnel. The future development and productivity of Indonestan manufacturing and other non- agricultural activities as well as the average returns to non-agricultural labor will depend critically on the speed and extent of skill acquisition through both formal and informal education.12 Summary 2.72 The data analyzed in this chapter are of varying degrees of quality: population data are thought to be reliable, employment data less so, and wage rate data are considered questionable. With these points in mind, the analysis indicates the following conclusions: (a) the population growth rate has declined to around 2% p.a. in the 1970s largely as a result of declining rates of fertility in Java and Bali; (b) growth of the labor force has been much faster (4.7% p.a.) and has been matched by expansion in employment; (c) the share of agricultural employment has decreased from about 66% in 1971 to about 62% in 1976; (d) point (b) in conjunction with point (c) imply a rapid rate of growth in non-agriculturil employment (7.0% p.a.) and the limited available evidence suggests that this has been achieved with constant or increasing real wages in rural areas and stagnating or declining real wages in urban areas; and (e) despite the vigorous growth in employment, wage levels for unskilled labor remain extremely low (approximately US$1 a day at 1976 prices and exchange rate). 2.73 The historical analysis suggests'that major structural changes in the pattern of employment can,occur without depressing real wages provided the agricultural sector expands rapidly and the non-agricultural sector expands even more rapidly. Thus between 1971 and 1976 value added in agriculture grew at a rate of 3.8% p.a. in real terms compared to a growth rate of 10.6% p.a. for the non-agricultural sectors (at 1976 constant prices). The overall /1 Ivergen B. Donges, Bernd Stecher and Frank Walter, "Industrial Develop- ment Policies for Indonesia," JCB Mohr (Paul Siebeck), Tubingen, 1974. /2 Formal education is discussed further in Chapter 3. - 54 - incremental output/employment ratio was nearly 0.6. One of the main factors underlying the high rate of labor absorption during the period was the rela- tively strong performance of the rice subsector which accounts for about 38% of total value added in the agricultural sector. 2.74 For the agricultural sector as a whole, the incremental output/ employment ratio during this period was of the order of 1.00, which means that average labor productivity did not increase. This is an indication that the yield improvements that were achieved in agriculture /1 during the period under review have been primarily the result of improved inputs (seed varieties, fertilizer, etc.) and cultivation techniques (including increasing cropping intensities) and not of labor displacing mechanization. In the case of rice, several studies have indicated that the use of higher yielding seed varieties does not necessarily lead to a reduction of labor input requirements per unit of output. On the contrary, it may even lead to an increased use of labor per unit of output./2 This would provide a major part of the explanation for the extremely strong agricultural employment growth during the period 1971-76 which was also a period during which, at least until 1974, the use of high-yielding varieties was still rapidly expand- ing in Indonesia. /1 For a detailed discussion of agricultural performance, changes in culti- vated and harvested area, cropping intensity and yields, refer to "Indonesia: Irrigation Program Review," World Bank Report No. 2027a-IND, dated October 16, 1978 and "Indonesia: Supply Prospects for Major Food Crops," World Bank Report No. 2374-IND, dated March 3, 1979. /2 See, for example, William Collier and Sajogyo, "Employment Opportunities Created by the High Yielding Rice Varieties in Several Areas of Java," Agro-Economic Survey, Research Note No. 8, June 1972. -5,)- CHAPTER 3: THE DELIVERY OF BASIC SERVICES: HEALTH, EDUCATION AND WATER SUPPLY Overview 2.75 A further measure of overall well-being is the extent to which the population benefits from services provided by the public sector. Since such services are frequently s,upplied at subsidized or zero prices, a simple analysis of consumptLon expenditure along the lines of Chapter I does not adequately measure the benefits accruing to the population from the increased supply, or improved quality of the major publicly-provided social services. In this chapter we focus, in paiticular, on the provision of basic health services (especially through the National Health Centers (PUSKESMAS) program), education at the primary and secondary levels, water supply and housing. 2.76 Table 13 provides a broad indication of Indonesia's healith, education and water supply status in 1971. With respect to vital statistics Indonesia's situation was not dissimilar to that of India in 1911; Lhe criide death rates being 17.0 per 1,000 for both countries and lLte expectancy at birth being 45.0 and 49.5 years respectively./I By way of contrast, the Philippines has a crude death rate of 10.5 and a life expectancy at bi.rTh of 58.5 years, whereas the corresponding figures for Bangladesh are 28.1 and 35.8. Indonesia's relative position improves in the comparison of educational attainment. The adult literacy rate in Indonesia was around 62% in 1974 /2 compared to 36% in India, 23% in Bangladesh and 21. in Pakistan. In the Philippines and Thailand, however, 87% and 82% respectively of th. adult population was literate./3 The pattern for primary school enrollment is similar: the enrollment ratio for Indonesia is 81 (1975) compared to 65 in Lndia and 73 in Bangladesh whereas the Philippines achieved a figure of 105./ 1 hiLtorLonaLely, comparative data relating to water supply are not readily available. 2.77 Table 13 also provid a comparison between Islands and between urban and rural areas. The most conlusive deduction from the;e data is the superior position of urban areas relative to rural areas in all respects. Infant mortality rates are nottceably lower in urban areas than in rural areas on both Java and the other islands. Infant mortaltLy rates are also /1 All comparative data in this paragraph are from "World Economic and Social Indicators," World Bank, 1978. The reporLed figures are for the latest year for which estimates were available at the time of its publication. Life expectancy at birth has subsequently increased to 50.0 in Java (average both sexes) and 47.5 outside Java. /2 The adult literacy rate had increased to 68% by 1976. /3 World Development Report, 1978. World Bank, August 1978, Table 18. These ratios include over-age students. -56- lower on Java than on the other islands regardless of urban or rural loca- tion, although crude death rates are similar. Differences emerge from the comparison of educational attainment. Whereas between 40 and 50% of the 1971 rural population of ten years or over was illiterate, the illiteracy rate in urban areas was around 20%. As might be expected, the data on water supply also reveal marked urban-rural differentials. Less than 1% of rural households had piped drinking water facilities in their houses or yards compared to more than 10% in urban areas,,and less than 10% of rural households had access to a flush toilet (whether owned, shared or public) compared to between 40 and 50% in urban areas. Table 13: SOCIAL INDICATORS OF HEALTH, EDUCATION AND WATER SUPPLY Java Qther Islands Urban Rural. Urban Rural Indonesia Vital Statistics, 1971 /a Infant mortality rate (per 1,000 births) 110 136 116 151 137 Crude death rate (per 1,000) 15 17 15 18 17 Life expectancy (years) - - - - 45 /b Educational Attainment, 1971 /c % of population, 10 years or over, illiterate 22 47 19 40 38 /e % of population, 10 years or over without schooling 23 48 20 41 40 /e Housing Characteristics, 1971 /d % of households with piped drinking water 12.4 0.3 10.5 0.3 2.1 % of households with access to flush toilet 49.1 5.3 43.9 8.0 12.7 /a Indikator Sosial, Table 2.3, 1976, Biro Pusat Statistik. /b As noted above the life expectancy at birth for both sexes has subsequently increased to 50 years in Java and 47.5 years outside Java. /c Population Census, 1971, Bir Pusat Statistik. /d "Housing Conditions in Indonesia," Tables 4, 9 and 17, 1974, Biro Pusat Statistikk /e According to the Intercensal Population Survey 1976, Series 3, the percentage of population aged 10 years or over that was illiterate was 32 and without schooling, also 32. -57- 2.78 In recent years Indonesia has allo-ated rapidly growing amounts of public resources to improving the provision of social services. Table 14 reveals an extraordinary growth in real expenditures on health (37% p.a.), education (45% p.a.), housing and water supply (31% p.a.) for the period 1971/72 to 1976/77 or 1977/78. Since 1973/74, large and rapidly growing amounts of this expenditure were channelled to social development through the various INPRES programs. The growing real expenditure reflects, of course, the rapid expansion in the total public sector budget as a result of increased oil revenues, and underlines Indonesia's commitment to a program which ensures that all members of society can participate in the newly acquired wealth. Table 14: DEVELOPMENT EXPENDITURE ON SOCIAL SERVICES, 1971/72-1977/78 /a (Billions of rupiah at 1976 prices) Average annual 1971/72 72/73 73/74 74/175 75/76 76/77 77/78 growth rate (%) Health and Family PlanniSg 13 16 26 39 62 62 - 37 Development expenditure 13 16 26 32 45 45 - 28 INPRES health - - - 7 17 17 - - Education /b 30 36 84 100 189 190 258 45 Development expenditure 30 36 55 75 134 136 178 35 INPRES primary schools - - 29 25 55 54 80 - Housing and Water Supply /c 7 10 19 16 16 27 - 31 Total Social Services 50 62 129 155 267 279 - 41 Development expenditure 50 62 100 123 195 208 - 33 INPRES - - 29 32 72 71 - - All Sectors 413 510 659 1,418 1,678 2,043 - 38 Development expenditure 317 425 547 1,236 1,459 1,796 - 42 INPRES 96 85 112 182 219 247 - 21 /a Constant prices obtained by application of Gross Domestic [nvestment Deflator. /b For education, the level of recurrent expenditure is also an important indicator. Recurrent expenditures on education during Repelita II have been: 1974/75 Rp 86.2 bn; 1975/76 Rp 100.2 bn; 1976/77 Rp 112.4 bn; 1977/78 Rp 147.2 bn; 1978/79 174.6 bn. /c Most of this expenditure is for water supply though some is allocated to the provision of low-cost housing through PERUMNAS. -58- Developments in Health Care 2.79 Since the late 1960s and early 1970s, health care efforts have concentrated on the development of a basic infrastrucutre consisting of provincial hospitals, regency or Kabupaten hospitals, subdistrict or Kecematan health centers, maternal and child health clinics and other polyclinics, and the parallel creation of the manpower required to staff the new facilities. The major efforts to improve health services for the population at large has been the extension of the PUSKESMAS program, according to which each subdistrict was to be provided with at least one health center, staffed by one physician, nurse or midwife, and several technical and administrative assistants, such that these would be capable of providing a range of basic health care services. 2.80 In terms of facilities constructed, the program has been a major success. In 1969, Indonesia possessed 1,058 health centers; by 1977 the country boasted 4,029, or more than one center for each of the 3,251 sub- districts. Apart from physical construction, manpower availability was at first a problem but is being overcome. In particular, the staffing situation of rural health centers has improved as a result of a new Government policy requiring medical school graduates to serve in the Government health centers before being licensed for private practice. Thus, while in 1974 only 34% of the PUSKESMAS were served by physicians, by mid-1978, the proportion was 91%. Nationwide, the supply in 1973 of about 6,200 physicians had been increased to almost 9,000 by 1976. Similarly, the supply of nurses and midwives has increased from 16,500 in 1973 to nearly 25,000 in 1976. Current estimates indicate that the majority (75%) of total health personnel is posted in Java and Bali. There are approximately six physicians per 100,000 people in Indonesia as a whole, but 25% of the total practice in Jakarta and a further 35% in 10 other major urban areas, mostly in Java. On average Indonesia has 19 nurses and midwives per 100,000 people. In addition, more than 50,000 traditional midwives have received some basic training. 2.81 The basic disease patterns and health problems do not yet appear to have changed very much in response to the investments in facilities and the improved staffing. On the other hand, trends of increasing morbidity observed during the first half of the 1960's were arrested. About 5% of the population is ill at any one time, and 25% of all illness is in pre-school children (less than 5 years). The three most commonly reported illnesses in order of importance are acute upper respiratory infections (accounting for 18% of the total reported cases), skin infections (13%) and tuberculosis (10%)./1 Apart from certain obvious exceptions (e.g. malaria which is much more pre- valent in the other islands than in Java), the general pattern of reported morbidity appears to be the same throughout urban and rural areas of Indonesia. New health problems associated with urban living are, however, beginning to appear; the emergence of cardiovascular and cerebrovascular diseases has recently been noted, particularly among the urban affluent. The incidence from traffic accidents has also increased sharply. /1 Household Survey, Ministry of Health, 1972. The ranking is still considered valid by the Ministry of Health despite the passage of time. -59- 2.82 Mortality statistics for 1971 provided by Lhe Ministry of Health indicate 16 deaths per 1,000 people per year, of which almost 50% are child deaths (under 5 years) and 2% are maternal deaths. This corresponds to about 0.6 mitlion deaths per year for infants less than one year old and 0.3 million deaths per year for children aged one to five. The three major causes of death are diarrhea and gastroenteritis (especially in the case of children under two), pneumonia and bronchitis, and accidents, poisoning and violence. 2.83 Although health patterns appear to be similar to those of the past, life expectancy has been increasing (see Chapter 1). A comparison of the periods 1965-70 and 1970-75 reveals an increase in life expectancy by about live years for both sexes to about 4!.5 years for females and 43.0 years for males. WhiLe the improvement may represent a recovery from the deternLoration La health condi- tions during the 1960s, it nevertheless suggests that the earlier conclusion on trends in disease patterns and incidence should be interpreted with caution. 2.84 The observation that a major expansion in health infrastructure has so far not been accompanied by a measurable improvement in overall health conditions is a matter for concern, and Government is trying to improve the efficiency and utilization of health facilities. At least untL1 recently, Low rates of utilization characterized the majority of these health centers. For example, the average patient load at health centers varied from 2 to 35 per- sons a day. Similarly, the bed occupancy ratio in hospitals ranged between 17 and 63%. In part, this reflects a popular preference for tradiLtional health care; it also reflects, however, the extent of poorly constructed, badly maintained, and understaffed facilities. Government has already made considerable progress Ln staffing the health centers with physicians, as noted in the increasing proportion of PUSKESMAS served by qualified doctors. Govern- ment has also launched a pilot scheme in 200 vilages to involve the community in health activities, following the same lines as the family planning program which has proved highly successful in this respect mainly through the agency of well-supervised field workers. In this approach the village, rather than the clinic, becomes the focus of actLi.vity and some of the responsibility for implementation is transferred from the public sector to the community. .85 ne crLtiical. area i.n wlich Government is involving itself is in bridging the gap between traditional attitudes and beliefs and modern medical science. The traditional healers and their medications are both highly regarded and widely used by the Indonesian population, especially in rural areas but also in urban areas. A 1977 study in Jogjakarta, for example, showed that only 45% of the sample had ever been to a doctor and only 16% to the health center located only one kilometer away, even though 40% had been ill the previous month. MosL had sought help from traditional healers, or else treated themselves. Government has a program to improve the skills of traditional healers and midwives, many of whom now offer both traditional and modern medications. -60- 2.86 Several factors outside the direct control of Government continue to hinder the improvement of the overall health situation. For example, the extremely low calorie intakes of the bottom 40% observed in 1970 and in 1976 (see Chapter 1) are not likely to have alleviated the severe protein-calorie malnutrition, which affects one-third of all children under the age of five (about 7 million) and is a major cause of Indonesia's high rate of infant mortality. If protein-calorie malnutrition is untreated before the age of two years, it may retard physical growth and mental development; after the age of three years, lost growth is almost impossible to recover. The malnourished are also more susceptible to infections which, in turn, can precipitate malnutrition by increasing caloric needs. 2.87 Another factor which affects the prevalence of water-borne diseases such as the diarrheal diseases, including cholera and typhoid, is the inadequacy of protected water supplies. In 1975/76, a survey in over 15,000 villages covering 42 million people revealed that only 2.5 million (about 6%) used protected water for drinking or cooking; the remaining 94% used unprotected water from rivers, lakes, and open wells./1 The habit of boiling water whenever possible before internal consumption, however, is widespread. Similar problems arise in urban areas. Jakarta, for example, like many other S.E. Asian cities, does not have a city-wide system for sewage and industrial waste disposal; as a result the Ciliwung Canal of Jakarta is severely polluted by fecal material, household garbage and waste from the pharmaceutical and textile industries. 2.88 Thus, although dramatic progress has been made in constructing essential health facilities and producing trained manpower, the population, for a variety of reasons, has not benefitted to a corresponding extent. The most obvious area for improvement in this respect is the need to increase the utilization of existing facilities and maximize community participation. Provision of Education Services 2.89 The provision of primary education has received high priority in recent years. Table 15 reveals that between 1971 and 1978 enrollment grew at an annual average rate of 5.8%. By 1978, 75% of the age cohort (7-12) were enrolled in primary schools./2 During the same period the teaching staff /1 Keadaan Status Kesehatan Masyarakat Dan Faktor Lingkungan Fisik, Biologis Serta Sosial (Public Health Situation and the Physical, Biological Milieu), Jakarta, 1977. Water supply is discussed below. /2 The total enrollment rate, including over-age students was over 80; if the 3 million estimated enrollment in religious schools (madrasah) is included, the enrollment rate was approximately 93%. -61- increased at an annual average rate of 5.1%. As a result the pupil/teacher ratio rose slightly from 31 in 1971 to 33 in 1978./1 A decline was observed in drop-out rates: over 10% of students dropped out in 1971 compared to around 8% in 1978. The number of primary schools has also increased rapidly; in all 31,000, or 35% of primary schools were constructed during the 1973-78 period. The physical dimensions of these achievements are certainly impressive. Table 15: ASPECTS OF PRIMARY AND SECONDARY EDUCATION, 1971-78 /a Average Annual 1971 1978 growth rate Primary School Enrollment (million students) 12.9 19.2 5.8 Teaching staff (thousands) 414.8 586.5 5.1 Student-teacher ratio 31.1 30.6 - Drop-out rate (%) 10.6 8.1 - Junior Secondary Enrollment (million students) 1.4 2.6 9.2 Teaching staff (thousands) 104.1 125.6 2.7 Student-teacher ratio 13.6 20.3 - Drop-out rate (%) 11.9 7.4 - Senior Secondary Enrollment (million students) 0.7 1.2 8.0 Teaching staff (thousands) 56.3 65.5 2.2 Student-teacher ratio 11.6 18.7 - Drop-out rate (%) 12.7 7.8 /a These data are only for schools under the jurisdiction of the Department of Education and Culture. A significant number of schools and educational services at all levels are provided by the Islamic Church and other private organizations. /1 Since most teachers work only part-time, the figures reported must be interpreted with caution. -62- 2.90 Other recent developments aimed at raising the quality as well as the quantity of education are worthy of note. First, a new curriculum was introduced for primary schools in 1975 which incorporated innovations in both syllabus and teaching style. Over 1.2 million teachers received retraining during recent years and 240 million Indonesian language, primary school text books have been printed and distributed. And second, a non-formal education program (PENMAS) has been initiated to increase the basic employable skills of those members of the labor force who have never attended school (19 mil- lion in 1976) and those who left school without completing their primary education (a further 21 million). While this program is still in its infancy, it is expected that it will be extended to cover most of Indonesia during REPELITA III. 2.91 Apart from some questions concerning the quality of teachers and teaching materials which are bound to arise during a period of such rapid expansion, the remaining issues relate primarily to the ability of certain sections of the population to benefit from the new facilities. For example, in the more remote rural areas with low population densities (e.g. Kalimantan and Irian Jaya) inadequate communications may prevent students attending school. Similarly, parents may not be prepared to allow children to attend school since the real cost includes not only school fees, but also lost earnings. 2.92 Some of these problems can be alleviated. In 1977, for example, school fees for the first three grades of primary school were abolished and in 1978 fees for grades four through six were also abolished./1 The existence of these problems indicates that additional expansion of primary enrollment rates beyond the target of 85% set for the end of Repelita II will become increasingly costly in terms of cost per pupil. But the total investment for an additional two million enr9llment set as a target for Repelita III will be much less than that required to meet the 7.3 million target of Repelita II. Universal primary education has been set as a target for Repelita III. 2.93 Table 15 also shows the rate of expansion at junior secondary level (13-15 years) and senior secondary levels (16-18 years). The high rates of growth of student enrollments is associated with a rising pupil/ teacher ratio and an improvement in the drop-out rate. Expansion at the primary education level has, as was to be anticipated, apparently led to an increased demand for education at the secondary level; while at the same time, the increase in the number of senior secondary graduates has led to a situation of excess supply. At the tertiary level, however, supply short- ages have emerged for teachers, scientists, technicians and accountants, and Government plans to establish polytechnics during Repelita III to increase the supply of industrial technicians and teachers. Table 16, for example, shows that while the vast majority of primary and junior secondary graduates /1 In some areas, however, certain charges continue to be levied by local school authorities to supplement teacher salaries arnd school budgets. -63- continue their education, 30% of senior secondary graduates are listed as looking for work one year after leaving school. This is consistent with the observed trend towards higher open unemployment among first-time entrants to the labor force reported in Chapter 2 and related in part to the high renu- meration expected by those graduates. Table 16: ACTIVITY OF SCHOOL LEAVERS ONE YEAR AFTER LEAVING SCHOOL IN 1976 /a (In percentages) Activity Type of school Continuing Looking school Working for work Inactive Primary 76 8 10 7 Junior secondary 88 3 4 4 Senior secondary 34 24 30 7 /a Data from "The Employment Experience of School Leavers", 1978, Department of Education and Culture. Water Supply and Sanitation 2.94 A safe water supply and satisfactory sewerage disposal are essential for the well-being of the population. In 1976, however, only 33% of the urban population and 4% of the rural population had easy access to safe water./1 Of those served, approximately 40% in urban areas had house connections, while in rural areas less than 20% received piped water supplies. The percentage of the population served with satisfactory sewerage disposal was also low, the figures being 17 and 20% for the urban and rural populations respectively. Three quarters of the 1971 urban population were served by latrines, but only 17% of these were considered sanitary; the remainder had no facilities of any kind. Conditions in low-income urban communities are even worse. In rural areas, about 20% of the population was served by latrines while 60% had no facilities whatsoever. 2.95 The inadequacy of water supply and sanitation services was under- lined by the results of a Household Survey conducted by the Ministry of Health /1 The statistics reported in this paragraph are from "Indonesia: Water Supply and Sanitation Sector Study," WHO/World Bank Cooperative Program, 1977. While there is no universally accepted precise definition of "safe" water for human consumption, the World Bank generally uses the drinking water standards recommended by WHO. -64- in 1972. In the six provinces surveyed, waterborne, water-related and parasitic diseases had the highest incidence and were a primary cause of the high infant mortality rate. Diseases related to lack of proper water supply and sanitation constitute a principal cause of morbidity and mortality. 2.96 Over the period 1970 to 1975 the percentage of the urban population having access to safe water declined from 36% to 33%. Insufficient awareness of the importance of maintenance and rehabilitation of the older networks has led to a situation in which as much as two-thirds of the nominal capacity of the urban water supply is lost as a result of waste, leakages and illegal connections./1 In addition, many public hydrants operate on insufficient pressure and most of the older urban systems operate only intermittently. However, a concerted effort is being made to improve the situation. An additional 3 million people are expected to be provided with safe water by the end of Repelita II, thus bringing the total served up to 40% of the 1979 urban population. With respect to sewerage, however, there are no specific invest- ment plans except for the Jakarta sewerage project which is under considera- tion and the Kampung Improvement Program which includes the provision of latrines and water supply. During Repelita III, besides continuation of ongoing works, 150 small towns are to be provided with safe water. In larger cities, public hydrants are to have priorLty as a step towards meeting the needs of low-income groups. 2.97 The water supply program Ln rural areas has been expanded considerably and the official target of supplying 10% of the rural population or 11.3 million people by 1979 is likely to be reached. This represents an increase of about 7 million with access to safe water since 1976. With respect to sanitation, 0.2 million latrines are built annually serving a population of 1 million. The crash program for training sanitarians should allow an expansion of the latrine program over the medium-term. 2.98 While much has been achieved, standards of service and coverage remain very low. Even if the various targets are fully met, well over 100 million Indonesians will remain without access to safe water in 1979./2 Inadequate sewerage and sanitation facilities will also continue to consti- tute major health hazards. The need for expansion of both water supply and /1 WHO/World Bank Cooperative Program, op. cit. /2 Refer footnote on previous page. -65- sewerage programs in REPELITA III is more than apparent, not only in the inadequacy of existing facilities, but also in the extremely high incidence of waterborne and water-related diseases. Housing 2.99 Apart from the inadequate provision of safe water, housing condi- tions in general are very unsatisfactory. For example,/1 the most commonly used material for the floor in urban areas is cement (used in 32% of all houses), whereas only 12% use cement in rural areas. Earth is used mainly by the poor, serving 25% of houses in urban areas and 52% in rural aro-as. The picture is similar with respect to material used for walls: in rural areas 56% of all houses use bamboo whereas only one-third of the urban houses use bamboo. Similarly, 31% of urban houses have electricity compared to 2% of rural houses. The majority of houses in rural areas (84%) rely on oil lamps. 2.100 Despite the superior condition of urban housing, the Government's main efforts have been directed towards alleviating the very visible over- crowding in the cities. Average occupancy in the 27 largest urban areas, for example, was estimated at over 1.4 households per dwelling in 1970. Even without attempting to relieve the overcrowding, at least 200,000 units would have to be constructed annually in order to house the future increase in the urban population. Commercial private housing construction primarily serves the upper income groups and probably produces less than 20,000 units per year. The remainder of the population relies almost completely on self- built kampung housing and squatter settlements. 2.101 Of the total REPELITA II allocation for housing of Rp 101.7 billion, Rp 90 billion was earmarked for the National Housing Corporation (PERUMNAS). Efforts were to be directed principally towards the low-income groups which was understood to mean families between the 20th and 70th percentile of income. Families below the 20th percentile were to benefit from the Kampung Improvement Program (KIP), which includes the provision of paved footpaths, improved drainage, public taps but not housing per se. The original PERUMNAS program envisaged the construction of 73,000 units between 1974 and 1979 partly through sites and services projects and partly as low-cost housing. It was anticipated that construction would accelerate from 2,268 units in 1975/76 to 41,468 units in 1978/79, but by the end of 1976/77 only 3,764 units out of an expected total of 10,484 had been completed. A crash program of construction was begun in 1977, and by the end of 1978, PERUMNAS had completed about 23,126 units. In addition, efforts have begun to improve village housing and environmental conditions during Repelita II through a pilot village housing rehabilitation program (Pemugaran Perumahan Desa). Just over 501) demonstration villages participated in the pilot program, which is planned to expand to 6,000 villages durtng Repelita III. /1 Data in this paragraph are from the 1976 Intercensal Population Survey, or provided directly by BAPPENAS. -66- 2.102 Costs for the sites and service units have varied from Rp 450,000 to Rp 1.01 million and for the low-cost housing units from Rp 1.0 million to Rp 2.64 million. Monthly rents are about Rp 2,800 for the former and Rp 4,100-8,600 for the latter. These figures imply a subsidy of about 65% of the cost for those obtaining public housing, vast majority of whom are Government employees. Thus, according to the Presidential guidelines, 75% of the sites and service units are to be allocated to Government employees with monthly household incomes of Rp 20,000 to Rp 33,750, which corresponds to the 30th to 45th percentile of the urban income distribution, and 75% of the low-cost housing units are to be allocated to Government employees with monthly household incomes of Rp 33,750 to Rp 90,000 which corresponds to the 45th to 90th percentile. 2.103 The achievements in the housing sector therefore are not quanti- tatively significant and those that have occurred serve primarily to benefit public servants. Some of the disappointing performance can be attributed to the normal start-up difficulties encountered by new institutions. An addi- tional factor, however, is the long process of land acquisition. Approval for land acquisition is necessary from the provincial governor, and recom- mendations are needed from the mayor or the Bupati (regency chief) concerned. A local land committee must decide on compensation, but landowners cannot be forced to accept the committee-determined price. In some cases, PERUMNAS has been forced to acquire land at some distance from city centers because such acquisition consumes less time and land is usually cheaper. Such land, however, is often unsuitable for low-income housing. 2.104 PERUMNAS' program for REPELITA III is expected to include 60,000 units as part of sites and services projects and a further 60,000 low-cost units, the total cost of which is estimated to be about Rp 165 billion. If PERUMNAS follows the current practice of renting all units at highly subsi- dized terms, it would require the Government contribution of nearly Rp 23 billion in 1979/80 to increase to Rp 56 billion in 1983/84 in order to carry out the proposed REPELITA III program. Despite the considerable cost, the program is unlikely to meet the growing demand for housing especially that originating with the poor. A further 30,000 housing units outside the PERUMNAS program are also expected to be financed by Bank Tabungan Negara, the Government sponsored mortgage bank. Summary 2.105 Although the provision of services has increased dramatically in recent years, the population has not always benefitted to a corresponding extent and the dimensions of the remaining problems are still daunting. With respect to health services, for example, almost 3,000 health centers were constructed between 1969 and 1977; yet disease patterns do not appear to have changed noticeably so far and facilities remain underutilized. The provision of educational services has been pursued vigorously and appears to have been more successful: universal primary education is within sight and secondary school enrollment is increasing rapidly. On the other hand, the provision of water supply, sewerage facilities and housing remains inadequate. Despite the achievements of the recent past, the task which has to be under- taken in REPELITA III is indeed enormous. -67- CHAPTER 4: LESSONS ABOUT EMPLOYMENT GROWTH, CONSUMPTION GROWTH, WAGE RATES AND DEVELOPMENT IN THE PAST AND THE TASK AHEAD Observed Links Between Employment Growth and Income Growth 2.106 An important observation emerging from the analysis in Chapters 1 and 2 is that during the period 1970-76, real per capita consumption levels have apparently risen at fairly substantial rates, even at the lowest levels (bottom 10%),/1 in spite of stagnating minimum wage rates./2 The latter suggests that the marginal productivity of labor did not increase. With unchanged real minimum wages and productivity, where did the additional income needed to support rising consumption at the lowest rungs come from? It is not unreasonable to assume that those who have no assets (land or capital) and who only have their own unskilled labor to sell, generally belong to the lowest income groups. An increase in their consumption level could be explained in light of one or more of the following: (a) the poorest groups systematically received income or asset transfers from relatives in higher income groups, or from the Government in the form of subsidies or grants; (b) they worked longer hours or took second jobs; (c) more members of the family started working so that family incomes rose without an increase in wage rates; or (d) a gradual shift occurred towards higher productivity employment. 2.107 Reason (a) has probably been a factor but it is not possible to quantify its relative significance. Direct income transfers from the Govern- ment to the poor are generally limited to emergency food aid in the case of drought or other disasters, however, this is not a systematic factor. Indirect income transfers from the Government in the form of price subsidies may be discounted as they are already reflected in the price deflators that were used to calculate changes in real consumption and wage levels. Income transfers from relatives may be important and fairly systematic but there is no basis for a quantitative estimate. 2.108 Reason (b) has probably also been a factor, but again no quantitative estimate is possible. Several micro-studies have observed the extremely long working, hours of men, women and children in poor parts of Java and it is /1 Refer to Table 5, Chapter 1. /2 Chapter 2 suggests that rural minimum wages stagnated or tended to increase marginally, while urban minimum wages stagnated or tended to decrease marginally. In looking at the employment picture as a whole there appears to be no evidence of consistent trends either upward or downward in real minimum wage levels. -68- entirely possible that working hours have increased over time in an effort to keep up with the rising consumption levels of others./1 2.109 Almost beyond doubt, reasons (c) and (d) are the most important of the four suggested reasons. As has been observed, labor force participation rates have risen significantly during the period 1971-76. The labor force and employment both grew significantly faster than total population, implying a drop in the dependency ratio. The overall labor force participation rate for the population aged 10 and over increased from 49.9% in September 1971 to 54.9% in October 1976. The relative increase was greatest for women in the childbearing age groups. It is therefore plausible that part of the real consumption increases observed for the lowest income groups has been achieved as a result of greater labor inputs at more or less constant real returns. This explanation would at the same time provide elements of a possible reconciliation between the two opposing schools of thought as to what has actually happened to the poor in Indonesia, particularly in Java./2 2.110 The possibility of a gradual shift in occupation structure - reason (d) - is also a plausible explanation of the paradox of rising consumption levels combined with constant real minimum wages. The decline in the proportion of the labor force engaged in agriculture and the accompanying increase in employment in other sectors may have offered many an opportunity to raise their effective real wages through modest productivity gains. The correlation noted between poverty and inadequate education suggests that improvements in the educational profile of the labor force between 1971 and 1976 may also have been a factor enabling many to undertake tasks and occupations that would previously have been unattainable. Literacy, for instance, will provide many new opportunities. 2.111 What are the lessons that can be derived from these observations for future development and employment policies? There is obviously a limit to increased labor input as a source of income and consumption growth at the lower income levels. But it is hard to say where the limit lies. Comparison with other countries in Southeast Asia suggests that Indonesian labor force participation rates are already relatively high./3 It is nevertheless possible that, because of projected changes in the age structure of the Indonesian population (see paragraph 2.119 and Table 18 below) labor force participation rates will continue to increase for a while, especially for women in the childbearing age groups. But the real question is whether the additional labor force growth can be absorbed without depressing real wage rates. /1 See for example, Benjamin White, "Population, Involution and Employment," in Economic Development and Cultural Change, No. 7, 1976. /2 Refer to para. 2.6 above. /3 ILO, Labor Force, 1950-2000, Volume 1. -69- 2.112 It is clearly very difficult to determine even qualitatively the relationships between value added growth, employment growth, consumption growth, changes in labor force participation rates and wage rates. To a limited extent the growth of employment is dependent on the growth of output. As a model for determining the growth of wage employment it would be correct to focus on the development of production in the more formal sectors of the economy, as a means of generating additional demand for labor. Yet, in a labor surplus economy where the main source of income for many of the poor is self-employment, it may also be appropriate to look at the supply of additional labor as co-determining the rate of output growth. To ensure that all addi- tional output can be absorbed by the market without depressing product prices and real wages, it is essential that aggregate demand grows commensurately. In the recent past (1971-76), the rapid growth in wage earnings, spurred by the oil boom and increased public expenditure, successfully sustained an adequate growth of demand. 2.113 In summary, the period 1971-76 appears to be of limited use as a guide for the formulation of future employment and development policies. It was an unusual period in many respects. And, it is obviously not prudent to base a long-term poverty reduction strategy on the assumption that dependency ratios will continue to fall indefinitely, or on the expectation that incre- mental labor supply will continue to find employment without depressing minimum wage rates. To ensure the possibility of full employment with increasing returns to labor at all levels, it is essential that the demand for labor grows at least as fast as the labor force and that there is a continuous process of skill upgrading and structural change in the economy towards higher productivity types of activities. On the margin it may be possible to alleviate specific aspects of poverty through increasing and improving social services for the poor, particularly in the fields of health, education, water supply, and housing, but these elements of a strategy cannot substitute for labor demand growth and skill upgrading in going to the heart of the poverty problem. Dimensions of the Future Poverty Reduction Problem 2.114 In its approach to poverty reduction, the Government faces enormous problems. The following statistics erode any sense of complacency about the task ahead: (a) in 1976, over 50 million Indonesians spent less than US$90 on consumption items (at 1976 prices); (b) minimum daily wage rates for unskilled labor are approximately US$1 or -less in most parts of the country; (c) life expectancy at birth is still very low by international standards, mainly because of high infant mortality and malnutrition; (d) well over 100 million people do not have easy access to safe drinking water 1l; and (e) close to 30 million people aged 15 and over are still illiterate. /1 Refer footnote 1, page 63. -70- 2.115 In seeking long-term solutions to the country's poverty problems, a number of difficulties stand in the way. The pace of population and labor force growth alone precludes any easy solutions. But furthermore, many economic factors will be less favorable than in the recent past, when the increase in resources from the oil sector greatly facilitated the expansion of employment in both the private and the public sector. The broad dimensions of the poverty redressal problem are outlined in the following paragraphs. The principal policy issues are deferred for more detailed consideration in Part III. Population Projections 2.116 Detailed population statistics and projections until the year 2001 for Java and Indonesia by age groups, based on alternative mortality decline assumptions are contained in the Statistical Annex and in the Quantitative Projections Appendix. Indonesia's population is now expected to reach about 210-220 million in the year 2001. By contrast, the World Bank's previous Basic Economic Report on Indonesia projected a range of 219-250 million for the year 2001./i The decline in projected population growth is in large part due to the success of the Government's family planning programs. 2.117 Under the new population projections based on the assumption of moderate mortality decline, Indonesia would reach a net reproduction rate (NRR) of one around the year 2020. The population would continue to grow, however, until the year 2145, when it would stabilize at an ultimate size of 356 million. The alternative (more rapid) mortality decline assumption would bring the achievement of a NRR = 1 forward by about 8 years (to 2012). Under that assumption the ultimate population size would be 369 million and this would be reached around the year 2135. 2.118 The population projections have two outstanding features for the period at least up to 1990 and probably to the end of the century. Firstly, the overall reduction in fertility will be offset by a decline in mortality, so that the population growth is likely to be unchanged from its current rate of 2.0% p.a. It is therefore necessary that long-term economic planning be carried out on that basis. Secondly, there is likely to be a widening gap between population growth rates in Java/Madura/Bali and in the other islands. A rapid fertility decline has already resulted in a reduced population growth rate for Java, and further systematic reductions are projected for the future. In the other islands, however, a reduction in fertility is not yet widely apparent, while mortality rates have already begun to decline. Even on the assumption that fertility declines can be achieved in the immediate future, a slight acceleration of the population growth rate is projected for the period through 1990, though thereafter reduced fertility is also likely to be translated into a declining growth rate. Natural increases alone will therefore tend to make the population sizes of Java and the other islands more similar over time. With successful efforts to increase the net migration from Java to the other islands, it is conceivable that these areas might have almost equal populations by the end of the century. /1 Indonesia: Development Prospects and Needs. World Bank Report No. 708-IND, dated April 15, 1975. -71- Table 17: AVERAGE ANNUAL GROWTH RATES OF THE POPULATION, 1976-2001 (%) Year Java Other Islands Indonesia 1976-1981 1.8 2.4 2.0 1982-1986 1.7 2.5 2.0 1987-1991 1.6 2.6 2.0 1992-1996 1.4 2.5 1.8 1997-2001 1.2 2.4 1.7 Source: Quantitative Projections Appendix, Table 1.1; assuming moderate mortality decline. Labor Force Projections for Java and Indonesia 2.119 The age structure of Indonesia's population is likely to change drastically in the next 25 years, and this has major implications for the growth of the labor force. In 1976, 29% of the population was in the age group 0-9, but by the end of the century this proportion is likely to be reduced to 23% (the figures are 41% and 34%, respectively, for the 0-14 age group); conversely, the proportion of people in the working age groups is expected to increase. Between 1976 and 2001, the population aged 10 and over is, in fact, projected to increase by 72%, whereas the population aged 0-9 will increase by only 30%, and the population as a whole by 60%. 2.120 Even with reasonably reliable population projections for the working age groups, labor force projections for a labor surplus economy like Indonesia are inevitably conjectural because of changing participation rates. The magnitude of the changes in participation rates in the past increases the uncertainty of projections for the coming years. For the purpose of illustrat- ing the magnitude of future employment needs, the following projections have been prepared (based on the moderate mortality decline population projections contained in the Quantitative Projections Appendix). In these, it has been assumed that the age specific participation rates observed in March 1976 /1 represent the absolute minimum that would be desired in a full employment situation, with the following exceptions: for the age group 10-14 it was assumed that their participation rate would gradually drop to zero by the year 2001 as a reflection of Government education policies; for the age group 15-19 and for those over 65 the drop would be one-half percentage point per year. Although constant rates have been assumed for other age groups, past experience suggests that participation rates for the 20-65 age groups, particularly for women, could continue to increase. Thus the labor force growth projections in Table 19 should be regarded as minima. /1 The March rates were chosen, rather than the September rates, because March is the peak agricultural season when total employment in the economy is at a maximum. -72- Table 18: POPULATION AND WORKING AGE POPULATION PROJECTIONS THROUGH DECEMBER 2001 (In '000) Sept. Oct. Dec. Dec. Dec. 1971 1976 1981 1991 2001 Indonesia Population 119,233 131,797 145,038 176,402 210,233 Population aged 10+ 80,947 92,870 105,605 130,804 161,053 Dependency ratio /a 1.47 1.42 1.37 1.35 1.31 Java Population 76,103 82,941 91,239 107,274 122,002 Population aged 10+ 52,314 59,272 67,896 82,148 97,396 Dependency ratio /a 1.45 1.40 1.34 1.31 1.25 Other Islands Population 43,130 48,856 53,799 69,128 88,231 Population aged 10+ 28,633 33,599 37,708 48,656 63,657 Dependency ratio /a 1.51 1.45 1.43 1.42 1.39 /a Defined in this case as population divided by population aged 10 and over. Source: "Employment and Income Distribution in Indonesia," World Bank Report No. 2378-IND, dated February 20, 1979, Appendix Table A-2 and Quanti- tative Projections Appendix, Table 1.1; assuming moderate mortality decline. Table 19: MINIMUM AVERAGE ANNUAL GROWTH RATES OF THE LABOR FORCE, 1976-2001 (%) Year Java Other Islands Indonesia 1976-1981 2.0 2.3 2.1 1982-1986 1.9 2.3 2.1 1987-1991 1.7 2.3 1.9 1992-1996 1.6 2.3 1.8 1997-2001 1.5 2.4 1.8 Source: Quantitative Projects Appendix, Table 1.3. -73- 2.121 It is of special interest to note that the effect of recent fertility decine on Java will soon have a major impact on the growth of the age group 15-24. Recent employment surveys, as discussed in Chapter 2, have shown that this is the age group where most open unemployment is concentrated, particularly among secondary school leavers. The following table shows the projected growth of the population in that age group for Java and for other islands, and this suggests that for the future, the problem of open unemployment could become more serious outside Java. Table 20: PROJECTED ANNUAL GROWTH OF POPULATION IN AGE GROUP 15-24, 1976-2001 (%) Year Java Other Islands Indonesia 1976-1981 3.1 2.7 2.9 1982-1986 2.1 2.6 2.3 1987-1991 0.5 1.7 1.0 1992-1996 0.3 2.1 1.0 1997-2001 1.0 2.7 1.7 Source: Quantitative Projects Appendix, Table 1.1; assuming moderate mortality decline. Implications for Regional Growth Requirements and Transmigration 2.122 Even under the conservative labor force projections presented in Table 19, the Indonesian labor force would grow by at least 36 million people or 80% during the 25-year period 1976-2001. Due to the decline of the growth rate, the absolute annual increment would remain about constant at 1.44 mil- lion through 2001. Of this annual increment, 56% or about 800,000 people would reside in Java. It is important to note that mainly because of different fertility rates, the labor force in Java will grow considerably slower than in the other islands. 2.123 No account is taken in these projections of the possibility of increased net migration from Java to the other islands. However, transmigra- tion could eventually have a substantial impact on the regional pattern of labor force growth rates. Assuming that the rate of net transmigration from Java to other islands gradually increases to 100,000 families per year by 1986 (and if age composition and labor force participation rates of transmigrants is the same as for Java as a whole) the annual labor force growth rate in Java during the period 1987-91 would drop from 1.7% to 1.3% and in the other islands it would rise from 2.3% to 3.0%. In later years these relative shifts would become even more pronounced. This suggests the need for very high rates of economic growth in the other islands. For the next several decades the remaining land development potential of Sumatra and Kalimantan offers the possibility to accommodate high rates of population and labor force growth through the rapid expansion of cultivated area and associated development. -74- A well conceived transmigration program can indeed be a very important, cost-effective component of an overall employment and regional development strategy. 2.124 The rate of total net transmigration from Java to the other islands is difficult to predict and depends in part on the pattern of regional growth itself. As far as official Government sponsored transmigration is concerned, the high growth required in transmigration areas does not pose a separate policy problem. Such transmigration is principally a function of the rate at which new areas can be opened up and prepared for settlement; there is appar- ently no shortage of applicants for official transmigration projects. The situation is somewhat different with respect to spontaneous transmigration, but the distinction between official and spontaneous transmigration should not be overdrawn. They are obviously interrelated and officially sponsored trans- migration projects should be designed so as to encourage and facilitate the flow of spontaneous, follow-up transmigration. Both types of transmigration may induce accelerated growth in the other islands through multiplier effects and thus attract more migrants to support the development of secondary and tertiary sectors. Ultimately, the need for high rates of labor intensive industrial development in the other islands may become as pressing as it is in Java, where most poverty is now concentrated. -75- PART III FUTURE DEVELOPMENT PERSPECTIVES AND POLICIES -76- INTRODUCTION 3.1 As reported in Parts I and II, the economy has been growing at a healthy pace of almost 8.0% per annum for a full decade,/l the population growth rate on Java and Bali has been reduced through fertility decline, a reasonable degree of monetary stability has been established; and most importantly, data on employment, consumption expenditures and education suggest that participation in development has been widespread. The country's capital stock is now considerably larger and in better shape than it was 10 or even 5 years ago. The capacity of most Government departments to manage and monitor development processes, and to prepare and implement policies and projects has been strengthened. At the same time, the very successes of the past decade have increased the complexity of the management task ahead. The need for improved coordination of actions and policies within the public sector is undoubtedly one of the greatest challenges facing Indonesia's economic managers today. However, looking at the Indonesian economy from the perspective of ten years ago, one cannot fail to be impressed by the progress that has been made on many fronts. 3.2 But, as has also been amply demonstrated there is no time for complacency. Indonesia has yet to resolve the fundamental problems of a labor surplus economy. The central theme around which most of the discussion in this part revolves is the need for a long-term, employment-oriented develop- ment strategy. This entails a massive domestic resource mobilization effort both public and private - the thrust of which should be aimed at achieving a much higher rate of industrial development and non-oil export growth. Several associated and subsidiary development objectives such as the need for increased food production, financial system development and geographical dispersion of the development effort will also be discussed. Indonesia's long-term develop- ment strategy should be to reduce dependence on exhaustible natural resources and to mobilize its greatest inexhaustible resource - people - to the fullest extent. These issues are hardly new; they have been at the center of Govern- ment's concern and the focus of several earlier World Bank reports on Indonesia's future development needs. They assume a new significance and urgency, however, in light of the expectation that several of the factors which contributed to the enormous expansion of public sector resources, investment and growth during the past decade will not be repeated. During the next decade, and particularly the first half of the decade, high growth may become more difficult to achieve. 3.3 Population policy issues will not be discussed separately in this Part. This is not because population policy has lost any of its fundamental importance for Indonesia's long-term development, but simply because it is not clear that a meaningful new contribution can be made on this subject at this time. The Government's population policy and family planning programs appear to be well conceived, well executed and cost effective. /1 Due to favorable terms of trade effects, growth of domestic income (GDY) was even higher; it amounted to over 9% p.a. over the past decade. - 77 - Promising initial successes have been scored. As mentioned, most of the programs have so far been concentrated in Java and Bali where the population pressure is greatest and where they enjoy growing popular support. An enormous task lies still ahead, but at this stage there is probably not much that can or should be done beyond continuing and intensifying on-going programs and extending them geographically as rapidly as possible. This is entirely in line with Government's plans and actions. Similarly, transmigration will not be discussed separately in Part III. Instead, specific aspects of trans- migration are dealt with in the general discussion relating, for instance to food strategies, employment generation or industrialization in the relevant chapters. 3.4 The structure of Part III is as follows: Chapter 1 reviews factors influencing medium term growth prospects and likely effects of the recent devaluation of the rupiah. Chapter 2 focuses on administrative constraints and on the general incentive framework as determined by trade taxes, subsidies and the exchange rate. Chapters 3, 4 and 5 deal with inter-related strategy issues concerning agricultural exports, industrialization, manufactured exports, private investment and financial system development. Chapter 6 outlines elements of a possible food production and consumption strategy. Chapter 7 deals with the expected public sector resource constraints and ways to overcome them. Chapter 8 focuses on external borrowing strategies in light of balance of payments projections and development needs. Finally Chapter 9 presents some concluding thoughts on overall development prospects. 3.5 The time frame for quantitative projections used in this report varies with the subject. Thus, the domestic resource picture is presented through 1983/84 and the balance of payments and external sector projections through 1990/91. Population and labor force projections, already discussed in Part II, are presented through the year 2001. Generally the focus is on long-term development objectives; however, the emphasis in much of the discussion is on the policy issues facing the country now. -78- CHAPTER 1: FACTORS DETERMINING MEDIUM-TERM GROWTH PROSPECTS AND IMPLICATIONS OF THE RECENT DEVALUATION 3.6 Projecting growth is always hazardous, particularly so in the case of an open economy like Indonesia which is widely exposed to strong and unpredictable external influences. The current instability on international currency markets, the decline of the US dollar and the recent devaluation of the rupiah add to the spectre of uncertainty. There are, nonetheless, a number of reasons to believe that the high overall growth rates of the past decade will become more difficult to attain and that the pressure on resources will increase significantly. The following discussion focuses on factors influencing medium-term/l growth prospects. Prospects for Oil 3.7 Underlying the expectation that high growth may become more difficult to achieve and that the pressure on resources will increase is the prospect that oil production is expected to stagnate during the next few years and grow only slowly therafter. In addition, a rapidly growing share of total production is expected to come from higher cost offshore wells and from secondary recovery, which will depress net returns. International oil price developments are more difficult to predict. Even if nominal price increases are sufficient to compensate for international inflation in terms of US dollars, as expected by the World Bank's Commodity division, the real value of oil in terms of other major currencies may well change. Much depends on international political and economic developments over which Indonesia has little or no control. Yet, the economy is extremely exposed to oil sector developments. Net-oil exports/2 account for 55% of total commodity exports (1977/78), 55% of domestic Government tax and non-tax revenues (1977/ 1978) and about 13% of GNP (1977). 3.8 Key oil sector assumptions and projections used in this report are shown in Table 1 below: /1 For purposes of this discussion, medium-term refers to the next 3-5 years. /2 Gross oil exports minus oil sector imports and other foreign exchange requirements, including debt service and factor payments to foreign companies. -79- Table 1: KEY OIL SECTOR PROJECTIONS AND ASSUMPTIONS, 1978-1990 1978 1979 1980 1981 1982 1983 1990 Crude oil production 615 616 594 621 651 660 732 (million bbl) of which secondary ) more than recovery and produc- ) 7% 11% 15% 23% 31% 34% 50% tion from new wells ) Domestic consumption 109 122 134 147 160 174 298 (million bbl crude equivalent) Exportable surplus 506 494 460 474 491 486 434 (million bbl crude equivalent) Source: IBRD estimates based on information supplied by MIGAS. Given the complexity of the oil sector, these projections are highly conjec- tural, especially since a rapidly growing share of total production will have to come from new wells (mostly in new fields) and from secondary recovery. Possible market constraints have not been taken into account. 3.9 Primary production from existing wells is expected to decline rapidly due to natural exhaustion. The projected rate of secondary recovery (primarily from the large Minas field in Sumatra operated by Caltex) is a function of investment decisions that have yet to be made. The projected rate of production from new wells, particularly in the later years, is a function of the rate of new oil discoveries. More than half of Indonesia's oil is produced by a multitude of relatively small fields and all new discoveries during the past several decades have been modest in size. 3.10 Therefore, continuous large scale exploration is required to maintain a minimum ratio between estimated recoverable reserves/l and current produc- tion. This ratio has declined in recent years as a result of a sharp drop in exploration activities following a general weakening of the international oil market in 1977 and 1978, uncertainties concerning the interpretation of certain tax rulings by the US Internal Revenue Service affecting US oil com- panies operating abroad, and Indonesian oil tax increases in 1976. The various tax problems have now been resolved and to revive the search for new oil reserves, the Government introduced an important new incentive package /1 Recoverable reserves are variously estimated by the oil industry between 10-15 billion bbl. This is the equivalent of 16-24 years of production at current levels of output. - 80 - effective January 1, 1978. Subsequently, major new exploration plans have been announced by most concession holders. The crude oil production projection for 1990 in Table 1 is based on the assumption that the level of exploration will soon return to the 1973/74 level of around 200 new wells drilled per year and that the success ratio will continue to be around 25%. 3.11 The annual growth of domestic consumption of oil is projected to decelerate from 12% in 1979 to 8.5% in 1983 on the assumption that domestic oil prices will be drastically increased over the next several years and that alternative sources of energy will be developed. Balance of payments and public sector resource projections for Indonesia are strongly dependent on this assumption. 3.12 If current investment plans for the expansion of the Badak (Kaliman- tan) and Arun (Sumatra) plants materialize, LNG and condensate exports are expected to increase rapidly and this will partly compensate for the slowdown in oil. On balance, however, the combined value of net-oil and gas exports and their contributions to Government revenues will grow more slowly than during the past decade. A stagnation or decline in oil revenues would have serious implications for the growth of Government savings and public investment. During the past 5 years, revenues from the Corporate Tax on oil have accounted for more than 100% of the Government's rupiah development budget and an estimated 65% of total public sector investments. The outlook for oil adds considerable weight and urgency to the argument for greatly expanded export promotion and domestic resource mobilization efforts. Non-Oil Mineral Prospects 3.13 While Indonesia has tremendous potential for (non-oil) mineral development and exports (particularly tin, nickel, copper, aluminum, coal and possibly uranium), the medium-term outlook is not especially promising. Reduced nickel prices and rising investment costs led a foreign consortium to postpone in 1977 work on a large ($1 billion investment) nickel project on Gag Island near Irian Jaya. The pricing factor plus a series of technical problems have also hampered start-up of another major nickel project in Sulawesi. Early in 1978 the Royal Dutch Shell Group cancelled a large ($1.2 billion investment) export-oriented coal mining project in the Lampung Province of Sumatra. Other major coal projects sponsored by the Government, and designed to develop southern Sumatra coal deposits primarily for use in domestic electric power generation, however, are moving ahead. Prospects for a large (low grade) bauxite mining cum alumina project on Bintan island remain uncertain on grounds of economic feasibility and financing. The large joint Indonesia/Japan hydro-electric cum aluminum smelter project on the Asahan river in Northern Sumatra is moving ahead on schedule in spite of enormous dollar cost overruns, due in part to exchange rate movements. But the direct contribution of this project to GNP and net-export earnings is likely to be modest in the medium-term, even if it is associated with domestic bauxite mining and alumina making on Bintan island. Tin production is expected to grow about 3% per annum through 1988, when full smelter capacity of 33,000 m.t. is expected to be reached. Copper production is expected to remain about constant, at least during the next decade. On balance, current prospects for non-oil mineral development are modest and, contrary to some earlier expectations, no -81- major growth stimulus is to be expected from that sector in the medium-term future. Furthermore, the contribution of these projects to employment growth is negligible, except during construction. Agricultural 'Prospects 3.14 During the past decade, agriculture and especially the rice sub- sector, has been a major impetus behind growth in incomes and employment. In the agricultural sector as a whole, and despite the boost given to the tree crop sector by the recent devaluation, there is little to suggest major changes in the near future in either the pace or the pattern of agricultural development. While major new projects and programs for secondary crops, transmigration, rubber and other perennial crops have been or are being formulated, these will inevitably take time to bear fruit. In the medium-term it is difficult to foresee an agricultural growth rate (including forestry and fisheries) higher than that of the past decade (about 3.8% p.a.). The draft third Five-Year Development Plan (Repelita III) anticipates an agricultural growth rate of 3.5% p.a. on average through 1983/84. The Pattern of Investment 3.15 Most of the Government's quick and high yielding rehabilitation projects in agriculture and infrastructure that were started in the late 1960s and early 1970s have been, or are about to be completed. A new generation of public sector projects and programs designed to create a large number of basic new industries and to vastly expand infrastructure, as well as public services was started after 1972/73 when financial resources appeared to be less of a constraint.]1 They include inter alia, the Krakatau steel mill and its subsequent expansion, the Asahan aluminum project, national and urban communication projects, urban highways and trunk roads, fertilizer and cement factories, petroleum refineries, LNG manufacturing and loading facilities, large new (extension) irrigation projects, a major program for the expansion of power generation, transmission and distribution facilities, and coal mining. 3.16 Some of the new generation industrial and infrastructure projects will only become fully operational towards the end of Repelita III or later. Meanwhile, they will lay claim on a substantial proportion of public sector resources during Repelita III, which limits the scope for redirecting public investment towards quick yielding projects and programs with a high direct employment effect in the near future. If in addition, the Government decides to go ahead in the near future with such major new projects as the proposed new Jakarta International Airport, the Bintan bauxite/alumina project, the Dumai refinery hydro-cracker, the Batam refinery and other major projects that have been on the drawing boards for some time, it is possible, depending on their financing, that few public sector savings will remain uncommitted for Repelita III. Generally, the Government should perhaps refrain from investing /1 This is not to detract from the important new projects and programs in health, education and other social sectors that, as discussed in Part II, were launched at the same time. -82- budgetary resources in capital-intensive projects unless they are more or less guaranteed to have a very high rate of return, to contribute significantly to alleviating the balance of payments problem, or if they are essential for the support of labor-intensive development elsewhere in the economy. 3.17 These considerations are already reflected in the Government's new external borrowing policy which actively encourages public sector enter- prises to seek private external loan and equity financing for many of their projects. In this way the Government expects to free sufficient budgetary resources for the funding of several major new social programs during Repelita III. Meanwhile, the long gestation period of many of the new generation public sector industrial and infrastructure projects may have the effect of temporarily depressing GDP growth as a result of an increase in the incremental national capital/output ratio. 3.18 The decline in recent years of private investment in manufacturing and mining is another source of concern that the rate of economic growth may slacken somewhat in the medium-term future. As discussed in Part I, the indigenization policies and the anti-inflation package of April 1974, just prior to the international recession, have all contributed to the lackluster performance of private investment in recent years. For the immediate future, the private investment outlook is uncertain. The reasons for this are complex and vary from industry to industry. The Pertamina crisis and the revision of the oil tax formula in 1976 (which was partly offset by new incentives offered in 1977) did undoubtedly leave some scars but those should soon be fading into the background. Another factor is that during the private investment boom of the early 1970s many foreign investors had over-estimated the size and growth of their market potential or under-estimated the intensity of foreign competi- tion, including that from smuggled imports. Consequently, much excess capacity was created and this is still plaguing parts of the manufacturing sector. The recent devaluation has improved the relative profitability of export-oriented and domestic resource based industries and this should stimulate private investment in those sectors, but it is too early for such responses to have registered. The following table/l illustrates the slackening of private investment in recent years: /1 Data presented in this table do not represent the total private investment picture; comprehensive information is not available. For example, no information is available on private investment financed with the aid of private foreign credit. It is believed that "offshore borrowing" consti- tutes an important element in the financing of private investment. -83- Table 2: MEDIUM TERM INVESTMENT CREDITS SUPPLIED BY INDONESIAN BANKS TO PRIVATE SECTOR AND DIRECT PRIVATE FOREIGN INVESTMENT, 1972-77 (in current prices) Domestic Bank Credits Direct Private Foreign Year End Approved Disbursed Investment (billion Rp) (US$ million) 1972 104 72 254 1973 124 88 331 1974 145 100 538 1975 151 114 454 1976 149 117 287 1977 149 113 285 Source: Bank Indonesia Perhaps as a result of a somewhat subdued private investment climate, growth of value added in the manufacturing sector fell from around 15-16% during the early 1970s to 11-12% during the last few years. 3.19 Finally, the high cost of administrative obstacles, including long delays in licensing and customs clearance add to the uncertainty surround- ing the private investment outlook. Although Government has recently taken steps to expedite the screening and approval of investment proposals, and launched a nationwide campaign to eliminate "pungli",/1 much remains to be done to make the bureaucracy more responsive to the needs of the economy. An unresponsive bureaucracy adds to the cost of production and retards devel- opment in many different ways. It also adversely affects the allocation of resources in the sense that it is generally a greater burden on small enterprises and domestic entrepreneurs than it is on large corporations, which may have the skill and the resources to deal with the problem. External Debt and Net Resource Transfers from Abroad 3.20 Another factor which is expected to add to the pressure on public sector resources in the medium-term is the maturity profile of Indonesia's external debt as it has evolved since the early 1970s. Large amounts of medium and short-term commercial debt were accumulated during the early 1970s and at the time of the Pertamina crisis in 1975. The adverse effect of the debt profile on medium-term debt service obligations has been mitigated somewhat by the replacement, in early 1978, on more favorable terms of $575 million remaining payments on cash loans originally totalling $1 billion. But it is nonetheless probable that the import capacity of net transfers from abroad to the public sector during the next five years will be appreciably lower than during Repelita II. /1 Unofficial levies. -84- 3.21 A complicating factor which aggravates the resource problem associated with the debt profile is the decline of the dollar vis-a-vis other major world currencies during 1977 and 1978 and, in particular, against the Japanese Yen and the Deutschmark. Indonesia's total public and publicly guaranteed external debt at the end of 1977 (excluding the undisbursed portion) amounted to the equivalent of about $11.7 billion calculated at June 1978 exchange rates. The same debt would have amounted to the equivalent of about $11.1 billion at December 31, 1976 exchange rates. This means that exchange rate movements have increased Indonesia's outstanding external debt expressed in US currency by about $600 million or 6% in a period of 1-1/2 years. Since most of Indonesia's exports are dollar priced (including, of course, oil) there are no significant offsetting factors to compensate for this real loss to the economy. 3.22 The effect of recent exchange rate movements on Indonesia's external debt would have been even more serious if Japan, Indonesia's largest bilateral creditor, had made all bilateral loans and credits in Japanese Yen. Though Japan accounted for about 31% of Indonesia's outstanding external public debt at the end of 1977, only about 18% of the outstanding debt is expressed in Japanese Yen. Table 3 below shows the approximate breakdown of the debt by currency and by creditor. Table 3: INDONESIA'S EXTERNAL PUBLIC AND PUBLICLY GUARANTEED DEBT AS OF DECEMBER 31, 1977 (DISBURSED ONLY) BASED ON JUNE 1978 EXCHANGE RATES Currency Amount Share Source Amount Share (US$ billion) (US$ billion) US dollar 5.65 48.3 Japan 3.60 30.8 Yen 2.05 17.5 USA 2.90 24.8 DM 0.89 7.6 W. Germany 0.86 7.4 Ruble 0.77 6.6 USSR 0.77 6.6 D.fl 0.71 6.1 Netherlands 0.73 6.2 Fr. Franc 0.44 3.8 France 0.49 4.2 Other 0.66 5.7 Other Bilateral 1.36 11.6 Multiple 0.52 4.4 Int. Org. 0.98 8.4 11.69 100.0 11.69 100.0 Source: IBRD external debt files. Terms of Trade Movements and External Demand Growth 3.23 Terms of trade movements which have been so heavily in Indonesia's favor during the early and mid-1970s but turned against her in 1977 and 1978 are not expected to be a major factor in the medium-term future. Much depends, of course, on the movement of exchange rates and particularly on -85- changes in the dollar price of oil. Projections by the World Bank's Commodity Division suggest that the long-term price prospects for most of Indonesia's non-oil mineral and agricultural exports are favorable and that moderately positive terms of trade affects may be expected. But it should be stressed that even a moderate decline in the constant dollar price of exported oil could easily wipe out the expected terms of trade gains for non-oil exports. 3.24 As Indonesia's exports amount to about one-fifth of GNP, with 85%, of total exports going to OECD countries (mainly Japan, USA and Singapore) it is evident that overall medium-term export and growth prospects are to some extent related to future developments in those countries. An overall OECD growth performance of just over 4% is expected through 1985./1 This rate is considerably lower than the one which contributed to Indonesia's extremely high growth performance of the early 1970s. OECD growth is therefore unlikely to exert a strong pull effect on the Indonesian economy in the medium-term future. This is important because in the medium-term rapid export growth is required to sustain a high rate of GNP growth. In the longer-term, as the economy develops a tighter network of domestic input-output relationships, particularly between the agricultural and industrial sectors, domestic growth could become less dependent on external demand growth. Implications of the Recent Devaluation of the Rupiah 3.25 In conclusion, the above analysis of major parameters that are likely to condition economic developments in Indonesia during the next few years, suggests the possibility of an overall resource constraint which could slow the momentum of growth and development. 3.26 It is against this backdrop that Government announced the deval- uation of the rupiah to Rp 625 per US dollar on November 15, 1978. While devaluation does not change the real resource position of Indonesia, it provides the means to do so by facilitating certain fundamental structural changes. Such changes are needed to set Indonesia firmly on a growth path that would lead to reduced dependence on oil and greater mobilization of other resources, in particular labor. 3.27 At this point in time, an assessment of the impact of the devaluation on development prospects is premature. Nonetheless, indications are that in the short and medium-term, the impact will be seen largely in an improved public sector resource position and some curtailment of imports. The full benefits can only emerge in the longer-run and then, only to the extent that growth of labor-intensive, export-oriented and import-substitution industries is stimulated and devaluation-induced inflation contained. At the present time, Government actions are indicative of its firm intention to take full advantage of the opportunities presented through the devaluation. 3.28 The November 1978 devaluation was unique in several respects. Occur- ring at a time of relatively stable domestic prices, following an unprecedentedly good rice harvest and when reserves were in a healthy position, the devaluation /1 World Development Report 1978, The World Bank, August 1978. -86- was not forced by external circumstances. Its timing, several months prior to the beginning of Repelita III, allowing sufficient time for the economy and investors to adjust to the new situation, was also excellent. The magnitude of the devaluation /1 is also unusual but has the advantage of elliff'ating fears of further devaluations and consequent speculative runs on the currency, and thus provides Government considerable leeway within which to introduce supportive measures to encourage structural changes in the economy. 3.29 The immediate distributional effect of the devaluation and the associated changes in tariffs is a massive transfer of income from import users to the export sector. Since the Government itself, because of the composition of revenues and expenditures, is a substantial net-exporter, the budget is one of the main beneficiaries of this income transfer, even after allowance is made for the additional consumer subsidies that may be needed as transitional measures to prevent sudden, socially disruptive domestic price increases. Apart from the initial income shift from the private to the public sector, it is very difficult to predict what the effect of the devaluation on the distribution of personal incomes and expenditures will be. Several forces will be at work both on the income and on the expenditure side and they will not necessarily work in the same direction. Of special importance will be the allocation of the additional Government revenues and the Government's management of relative price shifts between tradable and nontradable goods and services. Ultimately, the structural economic changes aimed at through the devaluation should lead to increased demand for labor, in particular unskilled and semi-skilled labor, and this may be the principle vehicle for the conveyance of devaluation-related benefits to the poor. 3.30 While the potential medium and long-term benefits of the devaluation for the economy as a whole are substantial, there is a danger of short-term contractionary influences caused by cost-push effects and liquidity (cash flow) problems facing import dependent industries and those with external debt repayment obligations. Since the Government is determined to prevent precipitous domestic price increases, transitional measures aimed at facil- itating smooth adjustment of the economy to the new price relationships, may have to include temporary, additional credit facilities for certain categories of enterprises. There are no hard and fast rules for monetary policy under these circumstances. The Government's short-term objective of price stability for a wide range of domestically produced but internationally traded goods may conflict with the objective of stimulating private investment in the context of the desired structural changes. On balance, it seems that a strong emphasis on strict credit controls to contain monetary expansion could be counter-productive. Apart from the need to neutralize a large part or all of the devaluation-induced budgetary surplus there may, at least initially, be little or no need for additional restrictive monetary measures. /1 The new exchange rate implies that there are 50% more rupiahs to the dollar than under the old exchange rate, which in the definition of the IMF amounts to a devaluation of 33.4% . -87- 3.31 The short term effects of the devaluation on the balance of payments are likely to be stronger on the import side than on the export side. Externally funded (program) imports are unlikely to be reduced as a result of the devaluation but growth of non-program imports (currently about $4 billion or 50% of total imports) will certainly decelerate in the short term. Assuming an import price elasticity of -0.5 for non-program imports, a domestic devaluation-induced price,increase of say 15% during the first year and taking acount of the 50% import duty reduction for intermediate inputs and the simplified duty draw back system introduced simultaneously with the devaluation, it is plausible that total imports in 1979 will be some $400 million (or about 5%) less than they otherwise would have been. 3.32 On the export side, realization of the potential devaluation benefits will take longer. The effect on mineral exports, including oil and LNG, however, is likely to be very small, even in the longer-run. Some of the minor agricultural exports (e.g. pepper, spices, tobacco) may be able to respond quickly. But the more important traditional tree crop exports typically have long supply lags (3-5 years) and will require supportive institutional development. Industrial exports may be able to respond rela- tively quickly (1-2 years), providing everything is done to reduce or remove administrative obstacles that are presently constraining their output growth and export orientation. 3.33 Even more importantly, import and export developments will depend on the impact of the devaluation on the overall growth performance of the economy, which in turn hinges on the ability of Government to contain deval- uation-induced inflation and to effect the desired kind of relative price shifts in the economy. On balance there seems now, after the devaluation, less ground for fears that the balance of payments will become a development constraint. Nonetheless, dramatic improvements are not foreseen. The next few years, on account of project commitments and gestation lags, could still show some temporary deterioration in the overall external position. Further- more, the devaluation does not reduce but rather intensifies the need for eliminating institutional obstacles and improving support services in the promotion of labor-intensive agricultural and industrial export and import- substitution items. The report places great emphasis on the importance in Indonesia of institutional factors as constituting, perhaps, greater supply constraints than relative pricing factors. It is, therefore, essential that Government does not regard devaluation as an alternative to redressing the fundamental institutional problems plaguing various parts of the economy, but acts promptly to mitigate the distortions. -88- CHAPTER 2: ADMINISTRATIVE CONSTRAINTS, PRICING POLICIES AND THE STRUCTURE OF INCENTIVES Introduction 3.34 The utility of whatever economics may have to contribute to policy making is conditioned by the degree of political commitment to development and by the ability of the administration to formulate and carry out appropriate policies and programs. There is no lack of political commitment to development in Indonesia but the administration, though much stronger than 10 years ago, is still weak relative to the magnitude and complexity of its task. This weakness should be a temporary problem only, but for the moment it may be the single most important constraint to the acceleration of development. The problem is primarily an inheritance from the past as was discussed in Part I. It is evident in the acute shortage of skilled and experienced managers and technicians in nearly all Government departments. In some fields of policy making, a lack of coordination between various departments and agencies is a major problem. In others, a very high degree of centralization in decision making processes appears to be slowing down development. 3.35 Policy makers in Indonesia generally agree that increasing effective demand of the poor through accelerated growth of remunerative employment is one of the key development tasks. The answer does not lie in the development of one particular sector, or in the promotion of small-scale production units only, or in labor intensive public,works, or in other efforts concentrated on one particular aspect of the problem. It is the coordination of regional and sector strategies, of social services, and macro policies that really matters. For example, the principal key to the solution of Indonesia's nutrition problem does not necessarily lie in policies for the agricultural sector. A good industrial strategy may have as much or more to contribute. The emphasis in this and the following chapters is on the inter-relationships between sector strategies and general development policies. The Incentive Framework as Determined by Trade Taxes and Administrative Bottlenecks 3.36 The incentive framework influences the allocation of resources and therefore the quality and the rate of development. This may be more true for private investment than it is for public investment but it is nevertheless important that incentives should be supportive of the general development effort. The general incentive framework has just been given a jolt in the right direction by the devaluation of the rupiah in November 1978. But there is still room for improving the allocative and distributional efficiency of pricing signals in the economy. 3.37 The Indonesian pattern of import tariffs indicates the classic pattern of protection which escalates with the degree of manufacture. Capital goods and basic industrial inputs enjoy the least protection followed by intermediate goods and finally, traded consumption goods which often enjoy high rates of nominal and even higher rates of effective protection. Quanti- tative import restrictions and complete import bans are rare. They are only -89- used in the case of a few industries of which automobile assembly is perhaps the most important example. Tariff preferences granted to ASEAN trading partners do not change the general picture of escalating protection in favor of finished consumer goods. The typical pattern of tariffs and sales taxes before the devaluation of November 1978 and associated measures was as follows: Capital goods and basic 5% import tariff industrial inputs +5% sales tax 10% total indirect tax Intermediate inputs 15% import tariff +10% sales tax 25% total indirect tax Manufactured consumer goods 30-50% import tariff 20% sales tax 50-70% total indirect tax The actual range of rates is much wider than suggested by this "typical pattern". The recent reduction of import duties by 50% on a wide range on intermediate and basic inputs (designed to reduce the inflationary impact of the devaluation) without a simultaneous reduction of duties on finished goods, has strengthened the general bias of the structure of trade taxes in favor of final stage processing. In other words, the tariff structure is not conducive to the promotion of intermediate goods manufacturing or the develop- ment of backward linkages in general. 3.38 The devaluation has significantly increased export incentives generally. Most export taxes and cesses on traditional agricultural exports had already been reduced or removed in recent years. Many, but not all, processed goods are exempt from export taxes. In spite of the reductions and exemptions, export taxes still accounted for some 20% of total revenues from external trade taxes, about 5% of non-oil revenues and 5.5% of total non-oil exports in 1977/78. Timber and tin exports account for nearly two thirds of Goverment non-oil export tax revenues. Some further reduction of export taxes on goods other than timber and tin may eventually be desirable, but the devaluation has reduced the urgency of such measures. Temporary selective increases may in fact be called for to tax windfall profits that are not needed as supply induc,ements. There are no export subsidies but since April 1978, there are modest preferential interest rates favoring export oriented industries. There is, however, a duty drawback system for manufactured exports. Because of elaborate safeguards and time consuming procedures, :its incentive value was very limited until, at the time of the devaluation a new system was introduced. Under the new system, exporters incur a nominal liability upon importing inputs used in the manufacture of exports and this liability is cancelled upon certification of export. -90- 3.39 On balance, the official incentive framework as determined by trade taxes and tariffs, though not seriously distortive, does not seem to be fully in harmony with the needs of the economy. The potentially significant benefits of the devaluation notwithstanding, it continues to favor final stage assembly over intermediate goods and capital goods manufacturing. The framework also favors import-substituting manufacturing over export-oriented industries. In addition, pervasive corporate income tax incentives such as tax holidays and accelerated depreciation provisions tend to favor the use of capital over labor where factor substitution is possible. 3.40 The official incentive framework, however, gives an incomplete and in some cases possibly misleading picture of the actual situation. Although the smuggling of imported consumer goods has been reduced in recent years, it is still believed to be widespread. This tends to retard the growth of import substitution industries./1 3.41 Intermediate input manufacturing industries that do exist, such as cable and pipe industries, often suffer from a public sector import bias resulting from procurement requirements under externally aided projects. Preference rules for local contractors and equipment suppliers are generally becoming more prevalent but a considerable portion of bilateral foreign aid is still tied to procurement in the aid providing country. 3.42 Although many processed goods are exempt from export duties, industrial exports tend to be discouraged by administrative obstacles or unofficial levies. High handling charges and long delays in the ports, including delays in clearance from bonded warehouses and customs clearance in general, serve effectively as taxes on exports and additional protection to existing import substituting industries. The interest on capital associated with the tying-up of goods in the ports is often a significant element of these additional costs. The devaluation has undoubtedly improved the climate for export promotion but institutional factors may continue to present an obstacle to the rapid growth of export-oriented and import-dependent manufactu ing industries, particularly the smaller ones. The allocative and distributio distortions caused by these factors are probably more serious than those related to the system of official trade taxes. 3.43 With regard to the tariff structure, it is important to avoid going any further along the path of increased industrial protection. Change in opposite direction would be desirable. It should be stressed that every tax on imports, official or unofficial, ultimately serves as a tax on exports. The following changes in tariff policy may be worth considering: (a) move towards a more uniform tariff rate structure to reduce and eventually eliminate disincentives for input manufacturing, particularly in those cases where import substitution would be economically possible. In light of the recent devaluation and the simultaneous reduction of import duties on many intermediate inputs /1 See for example "Problems and Prospects for Industrial Development in Indonesia," World Bank Report No. 1647-IND, dated May 25, 1978, Volume II, p. 89. - 91 - by 50%, movement towards a more uniform rate structure should probably be accomplished through a reduction of duties on finished goods. To this end a special tariff commission might be established. Lower duties may at the same time reduce the incentive to smuggle and this would in some cases conceivably help to increase revenues; (b) for revenue purposes, move towards greater reliance on sales taxes, applied equally to imported and domestically manufactured goods of the same description. Interest Rates, Subsidies and Investment Incentives 3.44 With the exception of the subsidy on domestic oil consumption, most large, budgetary subsidies that existed in the early and middle 1970s (particularly on rice, fertilizer and certain types of time deposits) had, at the time of the recent devaluation, been significantly reduced or eliminated. Hidden subsidies, however, can be found in a number of sectors of the economy. The devaluation of November 1978 is likely to require the reintroduction of large consumer subsidies as a transitional measure to prevent sudden, socially disruptive domestic price shocks. The following analysis, however, deals essentially with the situation as it had evolved up to the moment of the devaluation on the assumption that the "shock absorption" subsidies that are likely to be needed will indeed be temporary. The devaluation has, of course, raised major new pricing policy issues, particularly with respect to rice and petroleum products, but these issues will be taken up in Chapter 6 and Chapter 7. 3.45 The total budgetary subsidy on the consumption of imported food and fertilizer was reduced from almost $1.0 billion in 1974/75 to $80 million (in current prices) in 1977/78. Lower level civil servants and military personnel continue to receive low priced food rations but these remaining "subsidies" are not believed to cause serious distortions in the economy. They have traditionally formed part of the income of the employees concerned. Elimin- ation of the ration system (involving wages in kind worth about $400 million in 1977/78) would probably be desirable in the long run, but compensatory monetary wage increases would be required. The gradual reduction of rice and other (import) food consumption subsidies has been the combined effect of the normalization of commodity markets after 1973/74 and slowly rising domestic prices. 3.46 The large fertilizer subsidies of the mid-1970s were associated with the huge Government nitrogen imports at peak international prices following the rice harvest failure of 1972. To encourage fertilizer use under the BIMAS and INMAS programs and to prevent steep rice consumer price increases, it was then decided to keep the farmgate fertilizer price low. The budgetary cost of the rice and fertilizer subsidies was very high but could easily be absorbed - thanks to rapidly rising oil revenues. The pre-devaluation farmgate price for nitrogen fertilizer was very close to the international price and the relatively small remaining subsidy covered only distribution and storage costs. Indonesia now has a growing exportable surplus of urea and the question of domestic subsidies is not expected to become a major issue in the near future. The natural gas used in the production - 92 - of fertilizer by PUSRI in Palembang, Sumatra is produced from a relatively small gas field with, at least for the moment, few if any alternative uses. The fact that the gas is sold to PUSRI at production costs does therefore not introduce an allocative distortion. 3.47 Budgetary subsidies to the five major State Banks (about $10 mil- lion per year at present), which together account for some 70% of domestic lending by commercial banks are largely an historical accident. They are needed to cover the small remaining negative interest spread between Govern- ment credit programs and certain types of term deposits. The negative spread was originally (early 1970s) much wider when term deposit and term lending rates were set independently in an inverted structure to achieve different objectives (i.e., liquidity absorption and investment promotion) at a time of high inflation. The progressive lowering of nominal lending and deposit rates since the early 1970s, with the exception of 1973/74, up to the latest (January 1978) reform package may be viewed as part of the financial normal- ization process in keeping with the gradual reduction in the rate of domestic price inflation. 3.48 The entire interest rate structure will have to be reviewed from time to time in light of the changing needs of the economy, as has been the practice in the past. Although the recent devaluation will inevitably lead to a temporary acceleration of domestic price inflation if only because of cost push effects, it is for practical reasons probably not advisable to raise lending rates in anticipation of devaluation-induced price inflation. 3.49 Similarly, in view of the current rather liquid position of the banking system, there does not appear to be an urgent need for increases in deposit rates. The desirability of long term positive real interest rates notwithstanding, negative real interest rates (both deposit and lending rates) may have to be accepted as part of a package of transitional monetary and pricing policies to help the economy adjust to the new exchange rate with a minimum of disruption. If, as a result of the devaluation, the rate of monetary expansion should exceed desired levels, the re-introduction of an inverted rate structure might be considered as a temporary measure to absorb excess liquidity. 3.50 Term lending rates are at present on the low side from a factor allocation point of view, but, because of the Government's policy to maintain the system of a convertible currency with a minimum of exchange restrictions the freedom of the Government to set domestic lending rates in isolation from prevailing international rates is limited. The fact that real lending rates are at present only barely positive and in some cases negative has to be viewed in the context of other policy objectives and the associated limitations imposed upon monetary authorities. 3.51 Moreover, a large gap between domestic and international lending rates would tend to discriminate between borrowers who have access to foreign credits (including for example private, foreign-owned companies and some domestic non-indigenous entrepreneurs) and those who do not (including the bulk of the indigenous Indonesian entrepreneurs). Such discrimination would conflict with the Government's indigenization policies. On balance, there does not appear to be at present an urgent need for drastic changes in the -93- structure and level of interest rates. Term lending rates could perhaps be increased somewhat and the structure of rates could undoubtedly be simplified. As part of a policy aimed at the development of domestic capital markets and greater allocative and operational efficiency of the banking system, it may be desirable, however, to move gradually towards a freer interest rate regime with market forces playing a more important role in determining rates at least with regard to non-program lending. But it would probably not be desirable to introduce major changes until the economy has adjusted to the effects of the devaluation. 3.52 A discretionary but hidden subsidy which may require revision is the blanket tax exemption of interest earned on bank deposits. This subsidy is additional to the small remaining open subsidy to State Banks to pay the relatively high interest on certain types of time deposits. The tax exemption was designed to encourage private savings but also had the unintentional effect of favoring capital owners without simultaneously providing encouragement to private investment in productive enterprise. But removal of this subsidy is not easy and its adverse distributional implications may be considered a price that has to be paid for domestic private savings mobilization efforts within the context of a convertible currency system in South East Asia. 3.53 Apart from the relatively minor budgetary subsidy on deposits and the blanket tax exemption of deposit interest earnings, there are other subsidies implicit in the use by Bank Indonesia of the rediscount mechanism as an instrument to promote particular types of lending operations by the State Banks. This system effectively conceals the various major costs incurred by the State Banks as a result of the high risk (bad debts) of lending to priority sectors at preferential rates. If subsidies are needed to provide adequate credit to priority sectors it may, from a resource allocation point of view, be preferable to clarify the cost of promoting certain sectors. It may also be desirable to provide greater freedom to Bank Indonesia to use the rediscount mechanism more as an instrument of monetary policy rather than as a mechanism to subsidize certain sectors of the economy at the expense of others. 3.54 In addition, an exceptionally high default rate on outstanding credit of a major State Bank caused by inadequate credit risk assessment has recently (June 1978) come to light in the course of inquiries by a Parliament- ary Commission on Finance, Trade and Banking. This has probably been a serious source of allocative and distributional distortions, and real losses to the economy. Steps to prevent recurrence of such losses have already been taken by Bank Indonesia. 3.55 Another important hidden subsidy in the Indonesian economy with both allocative and distributional implications arises from the Government's extensive scheme of investment incentives, including tax holidays, investment allowances, loss carry forward provisions, and accelerated depreciation of capital assets. These incentives are formalized in a frequently updated list intended to stimulate investment in priority sectors and priority geographical areas. From available information it is impossible to judge whether the scheme has succeeded in achieving its objectives. Its costs have not been - 94 - subjected to the scrutiny which is generally devoted to budgetary expendi- tures. The costs to the economy not only include revenues foregone (which are believed to be substantial) and administration expenditures, but also the adverse effects on employment growth which, in certain industries, may be associated with incentives that reduce the cost of capital relative to labor. 3.56 A general review of tax incentives to determine their economic justification may be called for. Lessons from other developing countries /1 suggest that their importance in attracting private investments that would otherwise not take place or shift to other countries is often over-estimated. Domestic Oil Pricing and Pricing by State Enterprises 3.57 Perhaps the most serious subsidy related distortions in the economy warranting separate discussion, are caused by the under-pricing of petroleum products and the under-costing of services provided by a number of State Enterprises. The budgetary subsidy on domestic oil consumption which, in the absence of domestic price increases, would amount to about $250 million in fiscal 1978/79 (not including the effects of the devaluation) is only a fraction of the true economic subsidy calculated on the basis of economic opportunity costs. The economic subsidy has, of course, increased as a result of the devaluation and the Government's decision to freeze domestic oil prices at pre-devaluation levels, at least for the moment. The weighted average domestic sales price of petroleum products (calculated at the new exchange rate) is about $8.00 per barrel of crude equivalent. /2 At a domestic consumption level of approximately 112 million barrel of crude equivalent (1978/79), the economic subsidy is of the order of $1.1 billion, or more than 2% of GNP. Just before the devaluation, domestic prices for regular and high test gasoline (together accounting for less than 20% of total sales in volume terms) were more or less in line with economic opportu- nity costs and practically the entire domestic oil subsidy accrued to the users of kerosene, diesel and heavy industrial oils. Under the new, post- devaluation pricing situation all domestic petroleum consumption is subsidized and substantial supplementary budgetary outlays will be needed as part of the Government's package of transitional pricing policies. 3.58 The under-costing of certain Government services, in particular electricity, road, rail, and water transport is not only related to the oil subsidy, but also to relatively low user charges, and in some cases to under-depreciation of assets which would become more serious if assets are not revalued, following the devaluation. In addition, several public sector enterprises did, until recently, not impute the cost of investment capital received from the Government and virtually all public sector enterprises do not bear foreign exchange risks on foreign borrowing which in the post- devaluation situation amounts to a significant de-facto capital subsidy. /3 /1 See for example George E. Lent, Tax Incentives in Developing Countries, in Readings on Taxation in Developing Countries, Edited by R.M. Bird and 0. Oldman, John Hopkins University Press, Baltimore, 1975. /2 The economic opportunity cost is the current export price (about $13.90 per bbl plus approximately $5.00 per bbl for refining, storage and distribution, or about $18.90 per bbl. /3 This subsidy is reduced in some cases by higher onlending rates charged by the Government to cover the foreign exchange risk. -95- The Government is generally committed to gradually move towards economic costing and, economic pricing for most public goods and services. In this process the Government is often confronted with the dilemma that price adjustments must be orderly and that hardship for the poor has to be avoided. 3.59 Many of the subsidies discussed are designed to benefit middle and lower income groups but they do not always reach the lowest income groups. This applies for instance to the kerosene subsidy which accounts for more than half the economic subsidy on domestic oil consumption. Analysis of the 1976 SUSENAS household consumption expenditures suggests that about half the kerosene is consumed in urban areas and that the lowest 40% in the expenditure distribution scale uses only 20% of all kerosene. Increased kerosene prices would, of course, not be painless to the poor and present for that reason an extremely difficult social and political problem. /1 Another complication is that kerosene competes with wood and charcoal as a source of energy for cooking in the rural areas. A significant relative price shift against kerosene could lead to increased cutting, which could be ecologically harmful, especially on the steep slopes of Java where erosion is already a major problem. A policy to reduce or remove the subsidy on kerosene should there- fore be accompanied by measures to increase the supply of alternative sources of energy, including perhaps coal or coal briquettes. 3.60 The allocative and distributional implications of domestic oil subsidies and public service under-costing may not be conducive to sound economic development. In addition to a number of factors such as inadequate public transport services in the cities, domestic oil pricing has probably contributed to the extremely rapid expansion of private motorized road transport after 1973. The average annual rate of increase of motor vehicle registrations (including cars, trucks, buses and motor cycles) acceler- ated from 12.5% during the period 1967-1972 to 20.5% from 1973-1976. For cars alone the relevant rates of increase were 8.2% and 11% respectively. /2 While these developments increased the mobility of people and expanded markets, which are undoubtedly major benefits, they have also contributed to serious traffic congestion and air pollution in the major cities and to a high rate of traffic accidents. Associated developments have been the banning of becaks /3 from downtown Jakarta during most of the day, the stagnation of passenger/km traveled by rail and the absolute decline of freight carried by railways, /4 as well as the proliferation of small, inefficient car assembly plants requiring a total import ban for their protection. /I The share of kerosene in' the average consumption expenditures for rural Java is 4.1%. It is of interest to note, however, that this is less than the share of cigarettes (5.8%). /2 Source: Central Bureau of Statistics, Statistik Kendaraan Bermotor dan Panjang Jalan. /3 A tricycle traditionally used for short distance. /4 Partly as a result of increased competition from road transport but also due to inadequate efficiency, the operating deficit of the railways (before imputing the cost of interest free capital) increased from about Rp 600 million in 1971 to Rp 5.4 billion in 1977). - 96 - 3.61 In the transport sector major policy questions have to be addressed with regard to the future role of private automobiles and the respective roles of road, rail, air and coastal traffic modes. Obviously, the domestic oil pricing question is only one dimension of this complex set of ques- tions. The future pattern of transport development will have important long-range consequences for private consumption patterns, the rate and pattern of urbanization, and the demands on public sector resources for infrastructure investment. Apart from general development and equity con- siderations, space limitations on Java suggest that the use of private automobiles has to be discouraged. The recent increase of the sales tax on automobiles from 20% to 50% followed by the devaluation of November 1978 may be expected to slow significantly the demand for private automobiles. Exchange Rate Policy 3.62 Between the devaluation of August 1971 (which brought the exchange rate from Rp 378 to Rp 415 per US$) and the devaluation of November 1978, the rupiah was tied to the US dollar at a fixed rate of exchange. During this period a system of practically unrestricted convertibility was maintained, in spite of the fact that domestic price inflation during most of the inter- vening years far exceeded international and internal US inflation. In 1977 and 1978 (prior to the recent devaluation), however, domestic price inflation slowed down significantly while at the same time several important world currencies floated up against the rupiah and the dollar, which compensated at least partly for the differential inflation rates of earlier years. The effective depreciation of the rupiah against a trade weighted basket of curren- cies, including the dollar, was of the order of 15% between January 1977 and June 1978. 3.63 To provide some perspective to the question of exchange rate policy as part of Indonesia's general incentive policy, it may be useful to go back a few steps in history and review some important relative price shifts in the economy since August 1971. These shifts tended to strengthen general incen- tive framework biases against labor-intensive export industries (including agricultural exports) and in favor of production for the domestic market. In addition, biases in favor of capital-intensive methods of production have been strengthened by the fact that during the period 1971-76, the cost of unskilled labor in Indonesia rose by about 40% relative to the cost of imported capital goods. 3.64 The various relative price shifts in the economy since 1971, were, of course, not only determined by the Government's exchange rate policy but also by policies with regard to credit expansion, interest rates, tariffs, subsidies and relative commodity price changes in world markets. It is nevertheless useful to focus on the exchange rate per se. Table 4 below indicates the direction and magnitude of the principal relative price shifts in the economy since 1971 as determined by the exchange rate and other factors. The exchange rate adjustment of November 1978 approximately restored the relative price relationship that existed in 1971 between domestic non-tradable inputs and imported capital goods. -97- Table 4: CHANGES IN RELATIVE PRICES, 1971-1976 Unskilled Output Price Indices Jakarta Cost Imported /a labor /b Tradable /c of Living cap. goods wages Manuf. /a Agric. /a price index Index 1971 100 100 100 100 100 100 1972 100 119 110 118 106 106 1973 133 141 154 159 142 139 1974 168 186 189 218 199 196 1975 183 254 202 256 186 233 1976 201 280 238 333 192 280 /a Statistical Pocketbook, 1977. /b Mission estimates. /c Average of non-oil export and import price indices weighted by value of Indonesian non-oil exports and imports respectively. 3.65 The high level of aggregation in this table only permits its use for illustrative purposes. Nonetheless, the general pattern is clear. The cost of domestic inputs as reflected in the wage index for unskilled labor and the Jakarta Cost of Living Index had risen considerably faster than the cost of imported capital goods and the general weighted price index for Indonesia's (non-oil) exports and imports. Since the agricultural sector works with fewer imported inputs than the manufacturing sector, the general price shift between tradables and non-tradables is also reflected in the movement of agricultural and industrial output prices. The observed relative price shifts must have put a cost/price squeeze on non-oil exports in general and on labor-intensive export industries in particular. The intensity of that squeeze has, of course, differed from commodity to commodity depending on international price movements. Although increased profitability of production for the domestic market may have attracted additional investment and thus contributed to some additional employment growth, the long-term structural implications of these relative price shifts would have been gener- ally adverse. The exchange rate adjustment of November 1978 was undoubtedly motivated in part by the perceived need to compensate for these earlier relative price shifts. . 3.66 The timing of the devaluation was opportune. The Government acted from a position of strength. The 1978 rice harvest was known to have been very good and supplies were plentiful. The country's external reserve position was still improving and domestic price inflation had been reduced to less than 5%. After about 5 years of tumultuous economic change, the economy had finally reached calmer waters. Had the Government acted earlier, - 98 - say in 1976, 1977 or early 1978, it would probably have been much more difficult to contain devaluation-induced price inflation as the economy was still riding on the inflationary wave which had started during the years of the commodity and oil boom and also because the balance of payments showed substantial overall surpluses. Moreover, the need for supplementary tran- sitional budgetary subsidies would have been larger because of poor harvests in those years. The size of the devaluation suggests that the Government now aims at a long period of exchange rate stability, and that all efforts will be concentrated on realising the intended structural changes in the economy with a minimum of transitional disruption. 3.67 The unpegging of the exclusive link between the rupiah and the US dollar and substitution of a link with a basket of currencies is under- standable in light of the recent instability of the US dollar. Several countries had taken similar action earlier. The new system has the obvious advantage of greater flexibility in exchange rate management but it also has the disadvantage of creating a new element of uncertainty for all those engaged in international financial transactions. Although Bank Indonesia offers an optional facility to protect foreign currency depositors against exchange rate risk, the Indonesian money market has not yet developed to the point where it can easily provide hedging facilities against the new currency risks to which traders and bankers will be exposed. The new exchange rate regime will undoubtedly promote the development of such facilities. -99- CHAPTER 3: AGRICULTURAL EXPORT PROSPECTS General Considerations 3.68 Indonesia has traditionally exported a wide range of primary and semi-processed agricultural commodities which, together with timber and fish exports presently account for some 80% of non-oil exports and approximately 35% of total exports. Prospects for these exports assume added significance since, as will be discussed more fully in Chapter 8, balance of payments projections based on trends and expectations prior to the November devaluation suggest that import capacity would have become a serious development constraint before the end of the next Plan. In addition, these commodities provide employment and income to a large part of the rural population and are therefore of great social significance. 3.69 Since the early 1970s growth of agricultural exports, in value terms has been very healthy - increasing from approximately $0.6 billion in 1971/72 to $2.8 billion in 1977/78. However, the price increases enjoyed by many of Indonesia's exports during this period obscure the fact that the volume of several important traditional agricultural exports, including in particular rubber, copra, cassava and maize has been essentially stagnant or declining. In the light of the recent devaluation, it is of particular interest to examine the extent to which this problem is related to price shifts in the economy resulting from the fixed dollar/rupiah parity and high domestic inflation since 1971. /1 3.70 As can be seen from Table 5, the answer is by no means unambiguous. The composite volume indices show that non-extractive exports as a group have not stagnated; the trend volume growth rate was 3.6% p.a. if base year (1971) export. values are used as weights, and 6.6% p.a. if terminal year weights are used. The latter rate is much higher than the former because of the dramatic shift in the weight of coffee. This was caused partly by sustained high volume growth and partly by the exceptionally high international coffee prices that prevailed through 1977. Several traditional agricultural exports, including coffee, palm oil (at least until 1976), pepper and tobacco have managed to perform reasonably or very well in spite of the shift in the general incentive framework against labor intensive exports. Coffee, in fact, has been the star performer throughout this period and now vies with rubber for third place on Indonesia's export list after oil and timber. /1 The position that the exchange rate was a major factor is taken by several economic analysts, including for example Douglas S. Paauw, in "Exchange rate policy and non-extractive exports," Economics and Finance in Indonesia, Vol. XXVI, No. 2, June 1978. - 100 - Table 5: VOLUME INDICES FOR NON-EXTRACTIVE TRADITIONAL EXPORTS, 1971-1977 (1971 100) Base year Terminal year value value 1971 1972 1973 1974 1975 1976 1977 weights weights 52.8 35.6 Rubber 100 98 113 107 100 103 101 13.2 36.3 Coffee 100 144 136 151 173 134 216 6.9 7.2 Tea 100 98 88 124 103 106 115 3.6 3.4 Tobacco 100 143 182 154 107 112 142 10.6 11.1 Palm oil 100 113 126 135 185 194 194 1.2 0.3 Palm kernel 100 106 81 59 43 53 52 3.0 0.0 Copra 100 55 58 - 43 5 - 2.8 2.2 Copra cake 100 116 97 103 121 160 137 100.0 100.0 Composite volume index using base year weights 100 107 115 112 115 123 128 Composite volume index using terminal year weights 100 119 122 127 135 145 157 Source: Indikator Ekonomi. 3.71 Simultaneously, several relatively new agricultural exports, especially timber and fish, have performed extremely well. Since further- more, the poor export performance of some traditional export crops such as copra, tea and recently palm oil, does not so much reflect a poor production performance but rapid domestic consumption growth which has gnawed away at exportable surpluses, it is very difficult to generalize about the effect of relative price shifts since 1971 on the export performance of traditional non-extractive exports. Thus, while it is not possible to prove conclusively that the overall effect of the exchange rate has been a depressing one, there is some plausibility attached to this general proposition, particularly in the case of rubber, cassava and maize and also, in the case of copra. 3.72 This chapter, therefore, argues that while the devaluation is undoubtedly supportive of agricultural export promotion in general, it does not obviate the need for redressing those institutional factors which have undoubtedly constrained the supply of certain crops and of tree crops in particular. The chapter also considers the potential for non-traditional agricultural exports and the need for special measures to accelerate their export growth. - 101 - Rubber 3.73 In spite of its relative stagnation for over 15 years, Indonesia's rubber industry is still the third or fourth largest foreign exchange earner (after oil and timber) and the principal source of cash income for at least half a million families (smallholders and plantation workers), mostly in Sumatra and West Kalimantan. Stagnation began during the early 1960s and continued in response to the sustained fall of world market prices in real terms through 1972. Trees were either replanted at the wrong time or not at all and large areas under rubber gradually reverted to secondary forest to be tapped only when prices were high. There were, until some years ago, no major Government services to slow or reverse the declining production of smallholder rubber, and such services are still inadequate today. 3.74 The total area under smallholder rubber was about 1.9 million ha in 1975 /1 but this includes an area of senile and untapped rubber, estimated between 300,000 and 350,000 ha. A modest start has now been made with the rehabilitation of smallholder rubber in some areas but the progress made so far is small in relation to the magnitude of the task ahead. Total small- holder production, currently accounting for about two-thirds of national output, will probably continue to stagnate or slowly decline for some years unless the rehabilitation effort is expanded dramatically and until newly planted trees reach maturity. The potential for development is great. Average smallholder yields are estimated at about 350 kg per harvested ha and the quality is low. Modern estate yields are at least three times as high and the quality of their product is superior. In view of bullish long-term price expectations for natural rubber, rehabilitation of smallholder rubber in Indonesia offers a significant opportunity for income, employment and export growth. There are areas under rubber that may be better suited to other crops and alternative land use studies may be required in many instances prior to replanting decisions. This applies in particular to the remaining 160,000 ha /2 under rubber in Java. 3.75 Private rubber estates (accounting for about 14% of total output) replanted part of their areas with genetically improved varieties, but since they simultaneously shifted into other crops such as palm oil and cocoa, their output of rubber has stagnated. Until the recent devaluation, only Government rubber estates (accounting for 20% of total output) were expanding production and remained profitable - due to systematic replanting and sustained efforts to improve yields, maintenance and processing quality standards. 3.76 The point of this brief historical overview is that even at the old exchange rate, rubber production in Indonesia could be profitable under good management using modern agronomic technology and high yielding planting material. Price incentive policies through the exchange rate or otherwise /1 Statistical Pocketbook, BPS. /2 World Bank estimate. - 102 - are important to help revive smallholder rubber in Indonesia but not a substitute for institutional efforts required to introduce modern production and maintenance standards. Rubber, like coconut and other traditional tree crops, has become a high technology - though still very labor intensive-industry. Sufficient capital has to be provided to smallholders for replanting with quicker and higher yielding clones together with technical production, quality control and marketing support services. The technology requirements for smallholders and estates are essentially the same. 3.77 The urgent need for improving agronomic practices, adapting technology and developing institutional support and marketing services is not limited to tree crops, but applies to all traditional smallholder export crops - including food and feedstuffs, beverages, pepper and spices - and to potential export crops such as legumes, poultry, fruits and vegetables. Cassava 3.78 In the case of annual crops, cassava may serve as a further example to illustrate the general conclusion about the relative importance of develop- ing improved technical support services. Since the beginning of World War II, when Indonesia was the world's leading exporter of cassava products, exports have declined. In the past seven years, coinciding with rapidly rising domestic per capita incomes, and essentially stagnant domestic production, cassava exports fell from approximately 0.5 million tons in 1971 to just over 0.1 million tons in 1977. Thus, in value terms, cassava exports now account for a negligible proportion of traditional non-extractive exports. During the same period, exports of cassava from Thailand, where it was only recently - and specifically - introduced as a cash crop, increased from 1 to 4 million tons of dry cassava products, such that Thailand is now the world's leading cassava exporter. 3.79 Cassava is grown in most parts of Indonesia, predominantly by smallholders although recently a number of specialized commercial farms have been established. In terms of food energy produced, cassava is the second most important food crop in Indonesia after rice. The greater part of total production (currently around 12-13 million tons of fresh cassava per year) is used domestically for human food (66%), with 22% being used as an industrial input and only an estimated 2% for animal food. /1 3.80 In light of the rapid growth in international cassava trade during this period and strong domestic price incentives - in fact, retail prices of cassava in the rural markets of Java and Madura /2 increased more rapidly than the general cost of living index and also rose more sharply than either the price of rice or maize - the virtual stagnation of cassava production in Indonesia suggests that there are serious domestic supply constraints. Such constraints are believed to be primarily of an institutional nature. /1 Statistical Annex, Table 7.12. One ton of fresh cassava yields approxi- mately 0.3 ton dry cassava. /2 Data on prices received by farmers are not available. -103- 3.81 The conditions under which cassava is grown in Indonesia and Thailand are very different but a comparative analysis of cassava production and export performance of the two countries may, nevertheless, help to throw some light on the question of the relative significance of pricing and institutional factors as export and supply constraints for relevant products in Indonesia. The following table illustrates the problem; it also suggests that there is indeed a causal relationship between the behavior of Indonesian cassava exports and relative price shifts in favor of domestic sales. Table 6: CASSAVA EXPORT VOLUME AND PRICE INDICES, INDONESIA AND THAILAND, 1971-1977 (1971 = 100) 1971 1972 1973 1974 1975 1976 1977 Thai Export Volume Index /a 100 117 140 213 213 331 353 Indonesian Production Volume Index 100 97 105 122 117 114 114 Indonesian Export Volume Index /b 100 70 27/1 105 54 31 29 Thai Export Unit Price Index /a 100 107 125 145 175 183 176 Indonesian Export Unit Price Index /b 100 122 188 206 228 234 222 Jakarta Cost of Living Index 100 106 139 196 233 280 314 Java/Madura Rural Market Cassava Price Index /c 100 129 222 179 233 373 388 Indonesian Export Price Index divided by 100 95 85 115 98 63 57 Rural Java/Madura Price Index Sources: (a) World Bank Basic Economic Report on Thailand, Report No. 2059-TH, dated September 1, 1978. (b) Bank Indonesia. (c) Indikator Ekonomi. /1 For part of 1973, following a poor rice harvest, a cassava export ban was in force which explains the sudden drop in the volume of exports that year. 3.82 Even allowing for quality differentials, Table 6 indicates that Thai cassava export prices have risen less fast than Indonesian export prices. The table also suggests that it has indeed become more profitable in Indonesia to grow cassava for domestic consumption than for export sales. What might be termed a "relative export profitability index" (bottom line in table) declined from 100 in 1971 to 57 in 1977. -104- 3.83 Had domestic cassava supply in Indonesia responded to the strong price incentives, domestic market prices would not have risen so fast and a bias against exports might not have developed. If domestic cassava prices had only kept pace with the Jakarta consumer price index, the relative export profitability index would have remained above 100 through 1974 and declined to about 85 by 1977. 3.84 Finally, the ability of Thailand to successfully expand exports of non-traditional crops, such as cassava and maize is related to the excellent support (marketing and transport) services which have both facilitated actual exports and helped exporters to take advantage of the substantial economies of scale involved in shipping low value, bulk commodities. 3.85 Thus, the lack of supply response for cassava, as for certain other traditional non-extractive exports, such as maize and copra is believed to be related in part to institutional factors. To stimulate supply, the devaluation and other price incentives will no doubt help, but their effectiveness is bound to be limited in the absence of appropriate agronomic-technological and marketing support services, including efficient inter-island shipping. 3.86 Already, there are indications that the prolonged institutional neglect of non-rice crops is over. In the case of maize which in recent years has been imported rather than exported - a potentially significant program was introduced by BULOG in 1978 to provide price support plus market- ing and storage facilities in East Java, the main maize growing area in Indonesia. It is anticipated that this will become a national scheme in 1979. A support program for cassava is under preparation. Similarly, a smallholder rubber research institute was established recently in Sumbawa, Central Sumatra. Finally, BIMAS intensification programs for coffee, cloves and pepper, introduced in the course of Repelita II have already provided evidence as to the income and export potential to be derived from raising the productivity of those traditional agricultural smallholder crops. 3.87 The scope for raising productivity of the traditional non-extractive export crops, and thereby, rural incomes is enormous. In addition, Indonesia possesses considerable potential to further develop non-traditional exports, such as timber and fish and also to develop new agricultural exports, such as high value fruits and vegetables, legumes (especially soybeans) and poultry. 3.88 Timber and marine fish are special cases. Both have enormous potential for production, employment and export growth. Export performance does not seem to have been affected by relative price shifts in the economy. Appropriate regulatory intervention and promotion of domestic enterprises appear to be the priority issues at this time. Fish 3.89 World trade in fishery products has grown quite dramatically since the early 1960s and during the present decade, Indonesia has participated fully in this growth. Although small in relation to total production, -105- Indonesia's fish exports have grown rapidly in volume terms, and even more rapidly in terms of value. Since the beginning of Repelita I, fish export earnings have increased from less than $2.5 million to $165 million in 1977/78, or about 5% of non-oil exports. The increase in export earnings reflects primarily the growing selectivity of fishermen in catching higher- valued fish (especially shrimp, which account for almost 60% of export volume and 90% of export value). It is anticipated that import requirements in the major markets (Japan, USA, Western Europe) will continue to grow rapidly. Total marine fish production in Indonesia (about 1 million tons) is only about 20% of the estimated annual sustainable catch, and thus Indonesia enjoys the prospect of substantially increasing its fish exports. 3.90 Government's policy is aimed at securing a maximum share of production and exports for domestic Indonesian fishing companies. It also seems appropriate to continue and to better enforce the policy of reserving, at least temporarily, certain coastal fishing waters for traditional small- scale fishing operations. The ecological changes caused by the sudden introduction of large modern trawlers, can be economically and socially very disruptive for traditional fishing villages as has been analyzed by Collier, et. al, for coastal areas of Java. /1 The changes have to be gradual and traditional fishing villages have to be given a chance to develop alternative employment opportunities or to acquire the capital and training required to enter the age of marine fishing based on modern technology. Timber 3.91 As in the case of fish exports, appropriate regulatory intervention in the logging industry and promotion of domestic Indonesian logging and processing companies should probably continue to be the Government's chief policy concerns. Stricter enforcement of concession and forestry agreements, particularly with regard to logging limits, logging techniques and selective cutting may be required, especially for ecological reasons. But an acute shortage of trained Government foresters is a serious constraint. 3.92 Indonesia possesses the richest forest resources in East Asia. Aside from its contribution to export earnings, the forestry sector offers great potential for industrialization and employment growth in Kalimantan and Sumatra where 86% of classified production forests are located. Total log production in Indonesia has grown rapidly from about 4.6 million cu m in 1968 to a peak of 26.2 million cu m in 1973. At the same time log exports increased from 1.2 million cu m to 19.4 million cu m. In value terms the growth of timber exports was even more dramatic (from $11.1 million in 1968/69 to almost $1 billion in 1977/78). As a result of the recession in industrial nations, the volume of Indonesia's timber production and exports declined sharply in 1975. It has since recovered, though not yet fully to the levels that were achieved in 1973. /1 William L. Collier, Harjadi Hadikoesworo and Suwardi Saropi, "Income, Employment, and Food Systems in Javanese Coastal Villages" Ohio University, Center for International Studies, Athens, Ohio, 1977. -106- 3.93 The maximum sustainable annual cut from classified production forests totalling 52.2 million ha /1 (based on a recovery factor of 0.725 and an average life cycle of 35 years) is estimated in the range of 55-60 million cu m or an indicative production level of 40-43 million cu m. Ourrent production is of the order of 55% of this indicative maximum. Assuming a 5-6% annual increase in log production, the indicative production level could be reached by 1990. It should be stressed, however, that forestry inventory surveys are as yet incomplete and that revisions of the estimated maximum sustainable cut should be expected. 3.94 Aside from logs, timber products exported from Indonesia include sawnwood, plywood, chips, hardboard, moldings and most recently furniture. In order to boost domestic processing of logs, Government adopted the policy of linking forestry agreements to an obligation on the part of the concession holders to develop wood processing facilities. Nonetheless, the gross value of processed exports is still only about 5% of the gross value of timber exports, although an estimated 70% of processed timber products are consumed domestically. Export growth of downstream products appears to be constrained by high conversion cost and uneven quality. The problems are typically those occurring in the early stage of many industries, namely, a shortage of skilled labor, inefficient production operations, low capacity utilization, marketing problems and inadequate shipping facilities. In order to improve capacity utilization, Government has recently eased requirements concerning the location of processing facilities and instituted measures whereby concession holders are obliged to supply domestic sawmills with a certain percentage of their log production. As an additional incentive, export taxes on processed woods were eliminated in January 1978, while the export tax on logs was simultaneously increased to 20%. 3.95 It is expected that the next few years will see considerable rationalization and improvement in the sawmilling and downstream processing industry, particularly with regard to shipping facilities, the supply of skilled labor and marketing. Demand should not be the principal constraint to the rapid development of this potentially very significant export industry. A large part of Indonesia's log exports are currently processed for re-export in transit processing countries such as South Korea, Taiwan and Singapore. Even before the devaluation of November 1978, wages in those countries were considerably higher than in Indonesia though labor costs per unit of output may still be lower because of superior productivity. Eventually, however, Indonesia should be able to develop a comparative advantage over the transit- processing countries and capture a larger share of the market for processed tropical woods, particularly in Europe, the Middle East and North America. In the case of log exports the limiting factor is world demand but in the case of processed timber products the primary constraint is on the supply side. Human skill development and quality control are at this stage the principal tools to overcome those constraints. /1 1975 National Forest Development Plan. This estimate excludes commercial timber from landclearing operations in transmigration and other settlement areas. - 107 - Summary 3.96 The scope for raising productivity of both traditional and non- traditional export crops, and thereby rural incomes, is enormous. However, while the devaluation is undoubtedly supportive of agricultural export promotion in general, it cannot eliminate the need for redressing those institutional factors that have constrained their supply. Programs and policies to reverse prolonged institutional neglect have been introduced (through BIMAS and otherwise) for a number of crops, including rubber, maize, coffee, tobacco, pepper and cloves, but the scope and coverage of these remain as yet very modest in relation to the needs. 3.97 Some of the minor traditional export crops (tobacco, pepper and some of the spices) with a relatively elastic supply, could be expected to respond quickly to the devaluation. Indonesia should also be able to build-up export markets for a range of (non-traditional) high value vegetables and fruits, both fresh and processed. The development of such exports, however, is again highly dependent on marketing, storage and transport support services, either private or public. The supply response of the major traditional export tree crops (rubber, coffee, tea, coconut) is bound to be slow, even with adequate institutional support services, because of long gestation periods of the crops involved. Export growth of tea is in addition constrained by slow growing world import demand. The supply response of fish and processed timber could be significant and could materialize within a relatively short period (1-2 years). 3.98 On balance, dramatic changes in either the pace or the composition of agricultural exports as a result of the devaluation are not foreseen in the short run but there is bound to be improvement. This is important for balance of payments prospects and rural income and employment generation. The only major traditional agricultural exports which could show a very significant supply response within 3 or 4 years are palm oil and kernel oil but this is unlikely to result in rapid export growth because an acceleration in production growth is required merely to keep pace with domestic consumption growth. Domestic vegetable oil consumption-does already account for all domestic coconut oil production (in fact, coconut oil is already being imported) and began to eat into the exportable surplus of palm oil several years ago. The recurrence of an exportable surplus of coconut oil is not foreseen and the export volume growth rate of palm oil and palm kernel oil is expected to decline from 14% (1973-76 average) to 4 or 5% p.a. on average through 1990. Rubber export growth is projected to double (from 1% to 2% p.a.) after 1985. The conclusion, that export prospects for agricultural exports as a whole are unlikely to improve dramatically as a result of the devaluation underlines the need for industrial export promotion as will be discussed in the next chapter. -108- CHAPTER 4: INDUSTRIALIZATION AND MANUFACTURED EXPORTS Current Trends and Constraints 3.99 The issues of industrialization and manufactured export promotion cannot be separated. As has been observed before, the recent devaluation has not removed all obstacles to the promotion of labor intensive export-oriented industries. One remaining problem is that even after the devaluation, export- oriented industries do not enjoy the same degree of protection as import substitution industries. This bias of the incentive framework against exports is reinforced by unofficial levies and administrative obstacles which tend to discriminate in particular against small, labor intensive industries. The recent devaluation should nevertheless give a significant boost to industrial export promotion efforts by the Government through NAFED /1 and otherwise. 3.100 Available export statistics do not permit a detailed analysis of the export performance of non-traditional, non-extractive labor intensive manufactures. As a group they represent a small proportion (less than 5%) of non-oil exports; in export statistics they are usually grouped together under "miscellaneous" or "other" categories. Although individual items may have shown strong export performance, there do not seem to be indications, however, of a big surge in labor intensive manufactured exports as a whole. 3.101 The manufacturing sector 2j is, in spite of rapid growth during the past decade, still quite small and accounts for about 11% of non-oil GDP (1977) and about 8.4% of total employment (October 1976). The growth rate of manufacturing value added /2 appears to have declined from about 15-16% p.a. during the early 1970s to 11-12% in recent years. The decline of the growth rate, the lack of export orientation, the stagnation of private investment, the geographical imbalance in industrial development and the concentration of new investment in capital intensive units and final stage processing of luxury goods for domestic consumption are all matters of serious concern. Given its low base, the industrial sector in Indonesia is the only goods producing sector capable of sustained high rates of growth for a long period without being constrained by a lack of financial or natural resources. With the prospect of slower expansion in the mineral (including oil) and timber sectors, it becomes all the more important to stimulate industrial development as one of the main hopes for future employment and export growth. Poverty elimination in Indonesia and sustainable rapid development are becoming increasingly dependent on the rate and quality of industrialization. /1 National Agency for Export Development. /2 Excluding oil refining and other mineral processing. -109- The Need to Accelerate Industrial Growth and Exports 3.102 To generate a significant impact on the growth rate of employment and manufactured exports, Indonesia should probably aim at a pattern of rapid labor intensive industrial development, with value added in manufacturing growing by not less than 15% annually, and manufactured exports growing by not less than 20% annually. This is a tall order. Obviously, such high rates cannot be sustained indefinitely but other developing countries such as South Korea, Taiwan, Brazil, Colombia have done so for sufficiently long periods. Indonesia is fortunate in having a potentially very large domestic market. But at present that market is too small to support the high manufactur- ing growth rates that are needed. For example, the Indonesian market for manufactured consumer goods is at present smaller than that of South Korea, a country about one-quarter its size in terms of population./1 This is only to illustrate the compelling case for a stronger export orientation of Indonesian industry. To achieve that greater export orientation, a strong political commitment is required. 3.103 The fact that Indonesia would be a newcomer in the league of semi-industrialized nations brings with it a number of major advantages as well as disadvantages. A major advantage is the possibility of using the experience of more developed countries to avoid costly mistakes; in particular those related to the pursuance of a high-protection, inward-looking strategy. There is now a substantial number of authoritative empirical studies showing that relatively open developing economies generally develop faster than closed ones and that exports are generally highly responsive to a reduction or elimination of biases against them./2 The major disadvantage presently facing Indonesia is that it is a newcomer in one of the most competitive areas of the world. Not the least of obstacles will be the fact that many countries, including developing countries, are still pursuing highly protectionist policies for precisely those labor intensive industries in which Indonesia might have a comparative advantage such as for example, garments, electronics, various kinds of processed food, tires and other rubber products, plastics, wood based products, and light engineering. 3.104 Indonesia has the largest remaining pool of inexpensive, and relatively literate labor in East Asia. Even before the recent devaluation, wages for unskilled labor were amongst the lowest in the world; lower than in Singapore, Hong Kong, South Korea and Taiwan. Labor is not unionized and /1 The 1976 SUSENAS suggest that total sales of clothing, footwear, plus durable and semi-durable consumption goods in that year in Indonesia were of the order of $1.3 billion. The comparable figure for South Korea is of the order of $1.7 billion. /2 A brief overview of the relevant literature is presented by I.M.D. Little, "Import Controls and Exports in Developing Countries", in Finance and Development, September 1978. -110- Government has largely refrained from intervening in the labor market. Indonesia also has a large number of potentially efficient seaportsl and relatively well developed communications and other infrastructure, at least in Java, where most of the surplus labor is located. Perhaps the greatest obstacles to the realization of a much higher rate of labor intensive industrial development and exports are physical and administrative bottle- necks, a relatively under-developed financial system, and other cost raising factors, including unofficial levies. Intensified efforts to overcome these obstacles are needed. In addition, it is possible that selective relaxation of indigenization policies may contribute to the mobilization of entrepre- neurial skills needed to achieve a much higher rate of industrial development. 3.105 Whether special export incentives in the form of subsidies or export bonuses are needed in addition to the removal of anti-export biases in the incentive framework and institutional obstacles is hard to say at this stage. The new exchange rate certainly does not appear to be inhibiting the promotion of manufactured exports. The experience of other developing countries suggests that the removal of obstacles is a powerful export in- centive by itself because of the additional growth potential it provides to individual enterprises. Post-devaluation indications are that the Government is indeed moving to remove such obstacles. One of the first decisions for example was to simplify the duty drawback system in such a way that import duties on inputs destined to be re-exported in processed form are registered as a potential liability only, to be cancelled upon certification of export. Export Processing Zones 3.106 While much remains to be done to simplify procedures and further improve the incentive framework for industrial exporters, it may, as an interim solution be desirable to create a series of export manufacturing zones where new industries can develop and buy not only imported inputs but also domestic inputs at international prices free of trade taxes. Such zones have been effective in several countries in early stages of an export drive as a means to attract and reassure foreign investors, to demonstrate the country's export potential, to promote backward linkages within the economy and to provide training and experience in technical skills, quality control and international marketing. One such zone already exists (in Jakarta), but for various reasons, it has not yet become fully effective. A decision in principle to create additional export processing zones has already been taken by the Government. 3.107 In promoting industrial exports there is no particular merit in concentrating such efforts on small enterprises only. To have a real impact on the economy, a major export drive cannot be based exclusively or primarily on cottage industries. In fact, it may be preferable to aim in particular at the establishment of medium-sized and large units to economize on scarce managerial skills, to facilitate access to foreign technology and to achieve effective quality control which is so vital for external market penetration. Larger units do not have to be less labor intensive than smaller ones. /1 Silting, however, is a major problem in many ports. -111- Elements of a Labor-Intensive Rural Industrialization Strategy 3.108 An estimated 72% of industrial employment in Indonesia is in Java, and as shown in Table 7 below, nearly three quarters of this share (53% of the total) is accounted for by East Java, Central Java and Jogjakarta. Less than 25% of all industrial employment (including all types and all sizes of manufacturing establishments, excluding mines) is provided by medium- and large-scale enterprises. The bulk of industrial employment is provided by small-scale, often single family enterprises, and most of these are located in Java. Table 7: INDONESIA: MANUFACTURING EMPLOYMENT, 1971-76 /a September 1971 October 1976 Annual growth ('000) () ('000) (%) 1971-76 (%) Java 2,378 77.3 3,017 72.3 4.8 East (544) (17.7) (755) (18.1) 6.6 Central (1,101) (35.8) (1,280) (30.7) 3.0 West (466) (14.5) (616) (14.8) 6.5 Jakarta (125) (4.0) (185) (4.4) 8.0 Jogjakarta (162) (5.3) (181) (4.3) 2.2 Sumatra 189 6.1 385 9.2 15.0 Kalimantan 44 1.4 154 3.7 27.8 Sulawesi 244 7.9 283 6.8 3.0 Indonesia 3,076 100.0 4,174 100.0 6.2 /a Employees whose sector of employment is unknown have been allocated to the manufacturing sector in proportion to the distribution of other employed workers. Sources: 1971 Population Census Series C. Tables 7.0-7.9 1976 National Labor Force Survey,'Table 14.9 3.109 There appears to be a serious imbalance between the regional distribution of industrial investment on the one hand and the regional distribution of industrial employment growth on the other. Jakarta is the hub of modern manufacturing in Indonesia and it is also the center of import-related activities including wholesale trade, banking and insurance. Sritua Arief estimated that, as of the end of 1975, 42% of industrial plants built under the foreign investment schemes and 50% of the plants built under domestic investment schemes were located in - 112 - greater Jakarta.L_ Yet, greater Jakarta (which includes part of West Java in Table 7) accounts for a much smaller proportion of industrial employment and the growth of industrial employment in that area has been modest relative to the magnitude of investment. Much of the geographical concentration of industrial investment in greater Jakarta is related to the location of Govern- ment and banks. The congestion in Jakarta resulting from this concentration of industry and import-related activities has reached serious proportions and may become a constraint on further rapid development of the area. A policy aimed at the promotion of additional primary, as well as secondary industrial growth centers in Java and the other islands appears to be a necessary part of an overall industrial strategy. A step in this direction was recently taken with the introduction of geographically differentiated investment incentives. 3.110 As discussed in Part II, the provinces of East and Central Java are the two provinces where most poverty in Indonesia is concentrated. Those two provinces and Jogjakarta would seem to be logical choices for the location of new industrial growth centers including perhaps export manufac- turing zones. However, regional population and labor force projections suggest that there is also an urgent need for accelerated industrial employ- ment growth in other islands. Whereas the scope for agricultural employment growth in several other islands is greater than in Java, there are nevertheless areas outside Java where the need to increase the rate of off-farm employment growth is already very pressing because of poverty and population density. This applies in particular to Bali, Lampung, South Sulawesi, and to some of the Nusa Tenggara islands. Without accelerated labor intensive industrial growth, several provinces outside Java could in 10 or 20 years become new poverty concentration areas. Greater geographical dispersion of industrial development requires greater decentralization of decision-making with regard to investment approval, industrial licensing, bank financing, etc. This is as relevant to the larger manufacturing units as it is to small-scale local industry. 3.111 Provincial Governments and Regional Development Banks should be called upon to play a much more active role in the promotion of local entre- preneurs and manufacturing enterprises. This, of course, requires institu- tional growth at the local level but it also requires a political commitment to work towards greater decentralization in planning and administrative control. Several steps in this direction have already been taken but most effective decision-making power regarding new industrial investment continues to be concentrated in Jakarta. The draft Third Five-Year Development Plan (Repelita III) confirms that the Government is indeed aiming at a far greater devolution of power to lower level authorities than presently exists. /1 Sritua Arief, Indonesia: Growth, Income Disparity and Mass Poverty, Jakarta, 1977. -113- Agro-Industrial Growth Centers 3.112 As part of a policy aimed at greater geographical dispersion of industrial investment and at promoting the growth of off-farm employment in priority areas it might be useful to employ the concept of agro-industrial centers. The main purpose of such centers would be to combine agricultural and rural development programs with the mobilization of local entrepreneurship to create and manage processing and manufacturing facilities close to production areas. Local banks, in particular the Regional Development Banks and their branch offices could become the prime movers in the establishment of such rural industries. Agro-industrial centers do not necessarily have to be small nor do their market areas have to be limited to the production area. Some may even be export-oriented. 3.113 There is tremendous scope for increased agricultural processing in many parts of Indonesia. This would not only reduce the perishability of many goods and thus increase their marketability in a larger area, but simul- taneously ease seasonal and regional price variations. Most agro-industrial centers would concentrate on agricultural processing and at the same time develop into centers for the manufacturing and repair of a wide-range of simple household needs, agricultural tools, furniture and building materials. They could also become decentralized instruments to promote productivity in agriculture by concentrating on alleviating supply constraints that are typical of the area. In some areas this may be the lack of simple water pumps and pipes, in others it may be the lack of drying facilities or proper storage for fish, meat, water or crops. The point here is not to identify the wide range of products that could be locally manufactured but to suggest that there is considerable scope for a rural industrialization strategy that would be consistent with the need for geographical decentralization, acce- lerated employment growth in the most hard pressed labor surplus areas and the promotion of agricultural productivity in those areas. Conclusion 3.114 Improving the incentive framework is a necessary but probably not a sufficient condition to bring about the high rate of labor-intensive manufactur- ing development that is needed in Indonesia for the next several decades. Increased and improved institutional support services are also needed, particularly in rural areas that could be designated as priority areas in Java and other islands. For some services, such as the provision of improved rural infrastructure, ongoing INPRES programs may be the proper vehicles. Additional programs aimed for example at the provision of rural electrification in areas with promising industrial potential may be needed. Improved services, particularly banking services are also needed to encourage local initiative and entrepreneurial and organizational talent to create productive facilities. Local banks, in particular the Regional Development Banks, could become the main catalysts in bringing about this type of development. Outside Jakarta, development banking services are generally under-developed. Therefore, one of the highest priorities for the execution of a policy aimed at accelerated and decentralized labor intensive rural industrialization is the strengthening of local banking institutions, and the promotion of their development orientation. The concept of agro-industrial centers could be helpful to focus the thinking on what might be done in particular areas. -114- CHAPTER 5: PRIVATE INVESTMENT AND FINANCIAL SYSTEM DEVELOPMENT 3.115 A major drive to accelerate industrialization and promote manufac- tured exports as intended by the recent devaluation would have to rely heavily on domestic and foreign private investment. Public sector resources would be inadequate to achieve the high levels of investment required, especially in the near future when a large proportion of public resources is already committed to ongoing projects. Financial resources of the banking system, including liberal rediscount facilities with Bank Indonesia, are at present not a constraint to the expansion of private investment in Indonesia. Most of the large State Banks, which together account for almost 90% of banking system assets, have been very liquid for the past several years and a reluctance to accept new time deposits has recently been noted./l 3.116 Although private investment statistics are not available, it is estimated that the balance between private and public sector investment during the past five years has been approximately 35-65. If the recent devaluation is to succeed in its objective of stimulating growth in labor intensive directions, a massive increase in the level of private investment and a shift in the balance between private and public sector investment towards the former, are needed. Development Banking, Credit Policies and Interest Rates 3.117 One of the key requirements for a significant expansion of private investment in Indonesia is the development of a larger and more sophisticated domestic capital market to assist in the term transformation of savings deposits and in the channeling of resources through investment banks. Indonesia's financial system is still in a relatively early stage of develop- ment as is reflected, for example by the fact that monetary assets are the dominant form of gross financial accumulation in the country. About 98% of identifiable domestic financial assets consist of money and quasi-money. To date, only one stock is listed on the revived Jakarta stock exchange, the Bursa. About two-thirds of total liquidity in the economy consists of currency in circulation and demand deposits. An important characteristic of financial asset-holding in Indonesia, therefore, is its short maturity. 3.118 The relative lack of long-term financial assets in Indonesia may eventually become a serious constraint on the development process, particularly if, as under the present circumstances, greater reliance has to be placed on private investment. Although the maximum maturity for certain types of credit /1 Since early 1978, excess liquidity of the banking system was in large part due to a lowering of reserve requirements and an upward revision of Bank Indonesia refinancing facilities. -115- programs has recently been extended from 5 to 10 years, further efforts are needed to stretch maturities to finance long gestating projects and to promote long-term savings. A shortage of equity capital is already a constraint on the development of many small and medium-sized private enterprises. Eventually, investment banks such as BAPINDO, IDFC, PDFCI, PT Bahana,/1 and possibly also some of the larger Regional Development Banks should be able to float their own bonds or broaden their equity base through share issues, perhaps initially with a Government guarantee. BAPINDO, PDFCI and IDFC cater primarily to the needs of medium and large scale enterprises, while PT Bahana concentrates on smaller undertakings. 3.119 Thus, although progress is being made, the domestic banking system has not yet sufficiently geared up to serve the needs of small and medium- sized enterprises in the private sectors, nor those of the housing sector./2 The various selective credit programs of Bank Indonesia (such as, for example, Kredit Investasi and KIK/KMKP) to provide loans to medium and small-scale enterprises, determine the flow of a growing share of State Bank resources. And under this system there has been an encouraging shift towards small scale investment and permanent working capital credits. But, although they have been growing rapidly, these programs are still very small in relation to the needs. In December 1978, the KIK and KMKP programs which were introduced in early 1974, accounted for only 2.8% and 3.5% respectively of total domestic credit outstanding to the private sectors. The capacity of State Banks to process and supervise Bank Indonesia sponsored investment credit programs is still rather limited which often leads to delays and inadequate project appraisal. 3.120 The structural constraints on the State Banks inherent in the pervasive system of selective credit policies and an interest rate structure fixed by Bank Indonesia may have contributed in recent years to an uneven provision of funds and financial services to various economic sectors. Some large public sector enterprises have to date had access to a reasonably well assured supply of funds. In times of a credit squeeze, they are likely to receive priority treatment. Within the private sector, the large multi- nationals and joint ventures with foreign firms appear to have no great difficulty in obtaining needed funds and financial services either domes- tically or from foreign banks. /1 PT Bahana which was established by the Government (1973) as a special- ized equity financing company to aid small businesses has only just started functioning. /2 However, the draft third Five Year Development Plan (Repelita III) provides for a significant expansion of the resources and the level of operations of the state-owned mortgage bank. -116- 3.121 The lack of financing facilities from the organized financial system is in some areas made up for by domestic informal money markets. However, little is known about the size of those informal markets and about the rates and terms prevailing in them./1 The informal money markets may, for the time being, be indispensible for the support of very small enterprises but this system of business financing cannot be relied upon to promote the gradual evolution of small industries into larger, more productive and more powerful units. Often, informal money lenders are at the same time input suppliers or output purchasers and the protection of their relatively strong economic position is not necessarily always compatible with rapid product- ivity growth in the manufacturing units they are supporting. Several financing facilities for small borrowers have been provided by the Government through special credit programs offering concessionary terms and simple procedures. In addition to the KIK/KMKP programs already mentioned, these include the Kredit Mini Programs introduced in early 1974 and the Kredit Candak Kulak (KCK) program introduced in 1976. These programs probably offer the best opportunities for further rapid expansion of credit facilities for small entrepreneurs, but the investment banks also urgently require strengthen- ing and an expansion of their equity base. The same applies to the Regional Development Banks, many of which are still quite small or not yet operational. With growing experience and adequate resources, they should be able to make a significant contribution to private investment in their respective areas. 3.122 To promote allocational efficiency, the Government might at some point consider opening up the financial system by allowing greater freedom to the State Banks in setting their own interest rates for non-program lending and by reducing reliance on sector-specific credit ceilings for program lending./2 Making the banking system less fragmented and credit restrictions less pervasive would probably also contribute to the develop- ment of domestic capital markets which is essential for the mobilization of long-term savings and the creation of long-term financial instruments. 3.123 In summary, the domestic financial sector needs to develop greater depth and flexibility to efficiently mobilize and allocate financial resources in support of greater private sector investment and development in the 1980s. This is particularly important in light of the expected pressure on resources which will undoubtedly lead to greater competition between the private and the public sector for available funds. Another important aspect of the need for institutional growth within the financial sector is the need for a more /1 Indications are that the "typical" range of lending rates is from 2% to 20% per month. /2 The extremely detailed planning by Bank Indonesia of the allocation of credit by bank and by program gives the impression of fragmentation and rigidity in commercial banking. In practice, however, State Banks have considerable freedom to switch available credit facilities between sectors and programs within the overall credit ceilings set by B.I. -117- active development orientation of the lending departments of State-owned commercial and development banks, including the Regional Banks. More attention could be devoted by bank managers to identifying suitable projects and helping domestic entrepreneurs to establish themselves. Private Foreign Investment and Project Appraisal 3.124 A significant increase in the level of private industrial investment will require an increase in private foreign capital inflows. Many new indus- tries will need foreign technology and, at least initially, foreign management. Given the convertibility of the rupiah and the virtual absence of restrictions on external capital transactions, an increased private capital flow from abroad could quickly mount again, as it did during the late 1960s and early 1970s. No comprehensive information is available on private international capital transactions or on private external debt. 3.125 In view of the high levels of effective protection or net effective subsidy afforded to certain types of industries through the tariff structure and the pervasive, often hidden subsidies in the economy, there is a danger that certain new industries might make a negative net contribution to foreign exchange earnings or savings. The present procedures for the appraisal of private investment proposals by the Government's Investment Coordination Board and relevant functional ministries, offer no adequate protection against this. The Board is primarily concerned with ascertaining the domestic market potential for relevant products, applying the Government's indigenization requirements, and considering applications for tax exemptions under foreign and domestic investment schemes. The Board also acts as a channel through which the interests of different Government departments are coordinated. The technical side of project appraisal is the responsibility of the planning and investment bureau of the respective Directors General while economic and financial considerations are examined at the ministry level. -118- CHAPTER 6: ELEMENTS OF A FOOD SUPPLY AND CONSUMPTION STRATEGY Food Supply and Demand Trends 3.126 Although part of the solution for Indonesia's nutrition problem lies in accelerating productive employment growth outside the agricultural sector, there is also a need for a comprehensive food production, marketing and consumption strategy. The only major food staple which has shown high produc- tion growth rates since 1968 is rice. This has been the result of concentrated Government efforts to rehabilitate and expand irrigation works, to spread the use of HYVs and associated inputs and to provide the necessary support services, including an increasingly effective marketing and price stabilization agency. Other food crops have not been neglected entirely, but they have received less Government support and attention than rice, in part because of difficulties related to their greater perishability. Marketing services for secondary food crops are generally underdeveloped, particularly outside Java, and most produc- tion takes place under conditions that are typical of a subsistence economy. However, Government has recently (February 1978) introduced organized storage, marketing and price support services for maize and plans for the introduction of a support scheme for cassava are being considered. 3.127 The evolution of the overall food supply and demand picture during the past decade (1968-77) can be characterized as follows: (a) total domestic production of the six main staple crops (rice, cassava, maize, sweet potatoes, peanuts and soybeans) together accounting for about 75% of food production in Indonesia grew at a trend rate of about 3% p.a. in terms of calorie equivalent. The rice trend production growth rate was about 3.5% p.a. and the composite trend growth rate of the 5 other staples was about 1.6%; (b) total availability of rice (accounting for roughly 50% of total food energy consumption in Indonesia) has grown almost 4% p.a. on a trend basis. Per capita rice availability is estimated to have reached about 126 kg in 1977; (c) total availability for domestic human consumption of the 5 main secondary crops is more difficult to estimate because information on their use as animal feed and industrial inputs is incomplete. But availability has almost certainly grown faster than domestic production because of declining exports. Assuming no change in the pattern of end use, availability for human consumption is estimated to have increased around 2% p.a., about the same rate as population growth; (d) domestic wheat production has remained negligible but imports have been growing rapidly (around 7% p.a.) and are expected to '-119- reach nearly 1.4 million tons in 1978/79. Information on sorghum and millet production is not available but the total quantities are believed to be insignificant in relation to total food supply; (e) total domestic production and availability of other foods, including mainly sugar, meat, fish, vegetables, milk, fruits, vegetable oils and poultry products is estimated to have grown around 4.5-5% p.a.; (f) the composite trend growth rate of domestic food energy availa- bility is estimated to have been around 3.7% p.a. (1.6% per capita) and the composite trend growth rate of domestic food energy production is estimated to have been around 3.2% p.a. The gap between production and availability growth rates indicates a growing food import dependency and is reflected primarily in reduced or disappearing maize, cassava, meat, and copra exports and increased rice, wheat and sugar imports; (g) average annual foodgrain imports during the last three years (1975-77) amounted to approximately 2.6 million tons or about 20 kg per capita. This may be taken as a measure of the current overall food deficit as reflected in effective market demand. It does not include the food deficit associated with malnutrition, i.e. the need for calories which is not expressed in effective market demand, whether for lack of purchasing power or otherwise. The nutrition gap, though difficult to estimate because of insufficient data, is probably of the order of several million tons of cereal equivalent. 3.128 Table 8 presents key data on recent food crop production, rice imports and fertilizer consumption. Extrapolation of food crop production and consumption trends observed during the period 1968-77, suggests growing import requirements of rice, sugar, wheat, and possibly also maize. Though not reflected in Table 8, it is important to note that Indonesia has in recent years also become a net-importer of refined vegetable oils (mainly coconut oil and palm oil). An apparent departure from long-run rice production growth trends was witnessed during the three-year period 1975-77, when output virtually stagnated. However, a number of incidental and temporary factors were responsible for this stagnation, including unusually severe drought and flooding in 1976 and 1977 in several parts of Java, severe pest attacks (from plant hopper) in many irrigated areas, and a temporary stagnation in fertilizer use./1 The rapid expansion of fertilizer distribution during the 1977/78 /1 For a discussion of fertilizer distribution, BIMAS and other agricultural support services, see "Indonesia: A Review of the Support Services for Food Crop Production," World Bank Report No. 2060-IND, dated December 11, 1978. -120- cropping season (by almost 20%) following the relaxation of distribution restrictions and the 10% preliminary rice production growth estimate for 1978, tend to confirm that the years 1975-77 represented an aberration and not the beginning of a period of drastically lower growth. Table 8: SELECTED FOOD PRODUCTION, IMPORTS AND FERTILIZER DATA, 1968-77 (Million tons) 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Rice production 11.7 12.2 13.1 13.7 13.2 14.6 15.3 15.2 15.7 15.9 Rice imports 0.6 0.6 1.0 0.5 0.7 1.7 1.1 0.7 1.3 2.3 Wheat imports /a - 0.5 0.5 0.3 0.4 0.9 0.9 0.8 1.0 1.0 Maize production 3.2 2.3 2.8 2.6 2.3 3.7 3.0 2.9 2.5 3.0 Cassava production 11.4 10.9 10.5 10.7 10.4 11.2 13.0 12.5 12.2 12.2 Sweet potato production 2.4 2.3 2.2 2.2 2.1 2.4 2.5 2.4 2.4 2.5 Groundnut production 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.3 0.3 Soybean production 0.4 0.4 0.5 0.5 0.5 0.5 0.6 0.6 0.5 0.4 Urea consumption 0.21 0.31 0.34 0.41 0.49 0.72 0.69 0.74 0.77 0.91 P205 consumption - - - - - 0.07 0.10 0.12 0.09 0.12 /a Including wheat equivalent of flour imports. Rice Demand and Supply Prospects 3.129 Rice is the preferred staple in nearly all parts of the country and at all levels of society. It accounts for about 50% of domestic food energy consumption and about 13% of GNP. It has a heavier weight (about 15%) /1 in the Jakarta cost of living index than any other component. Out of a total area of about 9.2 million ha under annual crops in Indonesia, nearly 6.5 mil- lion ha, or more than two-thirds is devoted to the production of at least one crop of rice./2 In spite of its dependency on oil for the financing of /1 The weight in the Jakarta Cost of Living Index is frequently cited as 31%. Mears, L.A. and Sidik Moeljono, "Food Policy", unpub. mimeo, Nov. 1977, Jakarta, however, claim this is a misconception arising from the manner in which the index is calculated. The weight of rice in 1957/58 was actually 31% but the revised weight in 1966 when the index was updated was only 21%. Subsequently, the weight had dropped to 18% in 1976 and 15% by late 1977. /2 For a more detailed analysis of agricultural land use statistics, see "Indonesia: Supply Prospects for Major Food Crops," World Bank Report No. 2374, dated March 3, 1979. -121- imports and public sector investments, Indonesia remains above all a rice economy. Rice directly affects the lives and well-being of more Indonesians than any other crop or product. 3.130 If there are no major changes in relative prices or in the pattern of income distribution, it is probable that the national expenditure elasticity for rice will be around 0.4 for at least half a decade./1 Assuming a population growth rate of 2% p.a. and a per capita expenditure growth of 4.5% p.a., total demand for rice would grow about 3.8% p.a. and reach about 23-24 million tons in 1985. Average per capita consumption would by then have increased to around 145 kg. At that level of average per capita consumption the national expenditure elasticity will probably have fallen below 0.4 but if consumption patterns remain the same, a saturation consumption level /2 in Indonesia would probably not be less than about 170 kg per capita. 3.131 The usefulness of long-term crop specific demand and supply projec- tions in estimating ex-ante gaps is limited to identifying measures required to prevent their ex-post realization. If the 1968-77 rice production trend growth rate of 3.5% is projected to continue through 1985, domestic output would reach about 21 million tons and import requirements would be of the order of 2-3 million tons. Therefore, in the absence of unforeseen production increases or policy measures to slow down rice consumption growth, it seems likely that Indonesia's rice import requirements will continue to grow and exceed acceptable levels. 3.132 The consequence of rice deficits of the projected magnitude - apart from the considerable strain on the balance of payments - would be a worrisome lack of food security and dependence on the thin and volatile international rice market. Indonesia's massive rice imports of 2.3 million tons in 1977/78 accounted for more than one-quarter of total world exports that year and it was only BULOG's skillful buying that prevented Indonesia from bidding rice prices against itself. Due to the good rice harvest of 1978, Indonesia's rice imports are expected to be limited to 1.3 million tons in 1978/79. /1 Cross-section analysis of the 1976 SUSENAS suggests that the weighted average per capita consumption expenditure elasticity for rice in that year was 0.47. /2 The point at which the weighted average expenditure elasticity approaches zero. Analysis of the 1976 SUSENAS suggests that this point would not be reached until average per capita consumption expenditures p.a. are well above $250 (in 1976 prices). The 1976 average per capita consumption expenditure level (according to SUSENAS) was about $130. -122- Irrigation Development 3.133 The importance of irrigation in Indonesia can hardly be over- emphasized. About 94% of all rice output in Indonesia is produced on sawah land,/1 85% of which is irrigated and 15% rainfed. The share of upland rice in total rice output has been steadily declining and is at present about 6%. Apart from sugar, rice is the only major crop under irrigation in Indonesia. All incremental rice output between 1968 and 1977 was produced on irrigated and rainfed sawah. Of the total incremental rice output between 1968 and 1977, Java accounted for about 60%. Four-fifths of incremental production was related to yield increases, and only 20% to increases in harvested area. Java's share in total rice production has remained constant at around 62%./2 3.134 The binding constraint to irrigation development during the next 5-10 years is probably the project design, appraisal, and implementation capacity of the relevant Government agencies. During the past decade, most of this capacity was allocated to rehabilitation projects in Java. Impressive progress was made. From 1969/70 through 1975/76 an average of about 160,000 ha p.a. was added to the stock of rehabilitated irrigation works. This achievement rate was close to original Government targets. Irrigation rehab- ilitation is likely to have been responsible for most of the high rate of annual yield improvements (2.8% p.a.) that were achieved over the past decade. At the same time (1969/70-1975/76) an average of 45,000 ha p.a. of extension irrigation and 36,000 ha p.a. of swamp and tidal land drainage and irrigation development on Java and the other islands were completed. Most of the major irrigation rehabilitation has now been completed although more fine tuning, including tertiary development, remains to be done on Java. In addition, there is much scope for further increasing the efficiency of rehabilitated works by completing the program for quaternary canal construction and assuring their proper maintenance. This is probably the highest irrigation development priority in Java at this stage. Completion of quaternaries would not only improve the efficiency of irrigation and hence production, but also serve to spread the benefits of irrigation more widely. /1 Sawah land refers to fields which feature small banks (bunds) around them to retain irrigation or rain water. /2 For a more detailed analysis of irrigated rice production and irrigation development prospects, see "Indonesia: Irrigation Program Review," World Bank Report No. 2027a, dated October 16, 1978. - 123 - 3.135 A technically feasible annual completion rate for economically viable new (extension) irrigation (including tidal and swamp land) develop- ment through 1985 is estimated to be of the order of 85,000 ha./1 This completion rate would probably require a relatively moderate increase in budgetary outlays for irrigation development of 3-4% p.a. in real terms. Most new (extension) irrigation project completion through 1985 would be outside Java. The expected rate of annual completion in Java through 1985 is modest (around 5,000 ha p.a.). Most irrigation development in Java would be the further rehabilitation and fine tuning of existing works. Plausible new (extension) irrigation development through 1985 would add about 1.5% p.a. to total harvested rice area in Indonesia. This, together with plausible average annual yield improvements of 2% p.a., would result in an annual production growth rate of about 3.5%, or about the same as the trend growth rate observed for the period 1968-1977. It should be stressed, however, that this projection is based on the assumption that ongoing irrigation investments mature on schedule, that supporting services such as research, extension, credit and plant protection improve, and that adequate producer price incentives are maintained. 3.136 After 1985 new (extension) irrigation projects already underway, or to be started shortly, would add about 30,000 ha p.a. in Java through 1990 (one third of which would be conversion of rainfed sawah to irrigated sawah) and about 75,000 ha in areas outside Java./1 These projects would again add about 1.5% p.a. to harvested rice area from 1985 through 1990. If in addition, through intensified support services efforts the rate of annual yield increases can be maintained at 2% p.a., the rice production growth rate could be main- tained at around 3.5% p.a. through 1990./2 3.137 It is difficult to say where the limits to further rice yield improvements lie. Average yields per harvested ha of sawah land in Indonesia (about 2 tons in recent years) are already at the upper end of yields realized elsewhere in Asia. But this does not necessarily mean that yield limits are in sight. Average fertilizer application rates (about 120 kg of urea per harvested ha of sawah land in 1977) are stil relatively low by the standards of more advanced rice growing countries and well below the BIMAS recommended level of about 200 kg/ha on average for different areas. The present use of insecticides in Indonesia is also still quite limited. Moreover, with the continuing conversion of rainfed sawah into irrigated sawah, the scope for increased use of high yielding varieties and associated modern inputs will increase. There is also much room for improving adaptive rice research in Indonesia. /1 "Indonesia: Supply Prospects for Major Food Crops," ibid. /2 The assumption of a 2% p.a. yield improvement used in this report implies an average yield of around 2.6 tons per harvested ha by 1990. - 124 - 3.138 The limits to irrigation development in Indonesia are not less difficult to assess than the limits to yield improvement. Areas totalling about 5.4 million ha have been tentatively identified as suitable for new (extension) irrigation and swamp development./1 This is only a little less than the total area under any form of irrigation (including rainfed sawah) at the present time. At a projected completion rate of 95,000 ha /2 p.a. after 1985, the tentatively identified remaining irrigation potential would not be exhausted until well into the 21st century. However, the economic viability of most potential projects has yet to be established. Nor is there certainty about the adequacy of water resources. The need for a long term water resources development plan, including an assessment of the future water requirements for industrial use and human consumption is suggested by the competition for limited surface water resources apparent in certain areas. 3.139 The groundwater potential for additional irrigation in Java appears, on present indications, to be limited although hydro-geological surveys are still ongoing. In most other islands, systematic examination of groundwater poten- tial has barely started. Crude estimates of Indonesia's ultimate irrigated rice production potential based on low to moderate average yield and cropping intensity increases and present estimates about the remaining irrigation area potential range from 35 to 55 million tons. If water availability should become the binding constraint to irrigated rice production expansion, a gradual shift towards foodcrops that are less water intensive than rice would be the logical solution to stretch limited water resources. Rice Producer Price and Fertilizer Price 3.140 Although the rate of new (extension) irrigation development (Govern- ment investment) and technological progress (Government support services and improved water management through rehabilitation and fine tuning of irrigation works) are probably the principal long term rice supply determinants, it is useful to examine the importance of producer pricing as a policy instrument. Unfortunately there is no agreed opinion on the own or cross-price elasticity of rice supply and in empirical analysis of supply determining factors, it is extremely difficult to isolate the pricing factor. Rice is the only major food crop in Indonesia the producer price of which is directly influenced by Government price setting. The control is exercised by BULOG through market intervention and not through legal enforcement. Until recently, little information was available on prices actually received by farmers./3 The /1 "Indonesia: Irrigation Program Review," ibid. /2 The gross completion rate would be 105,000 ha, including 10,000 ha conversion of rainfed sawah to technically irrigated sawah. /3 The actual farmgate price is generally lower than the Government support price which is an into-store price paid by BULOG for gabah (paddy). - 125 - official paddy support price was raised in early 1978 from Rp 72 to Rp 75 and a further increase to Rp 85 per kg, effective February 1979 was announced in early November 1978.11 As shown in Table 9 below, the Indonesian paddy support price tended to be higher in 1977 than in other Asian countries. The official farmgate urea price was in 1977 not very different from what it was in other countries and the relative cost of urea (relative to the paddy support price) was lower in Indonesia than in other rice-producing countries. Table 9: PADDY AND UREA PRICES IN SELECTED COUNTRIES, 1977 (US cents/kg) Kg paddy required to Country Paddy price Urea price purchase 1 kg of urea Pakistan 8.05 13.7 1.70 Thailand 13.3 19.7 1.48 Bangladesh 14.7 12.7 0.86 India 9.5 20.4 2.15 Indonesia 16.5 16.9 1.00 Source: Various IBRD Country Economic Reports. 1.141 In Indonesia, the emphasis in rice pricing has traditionally been on keeping the price to consumers low and it has often been alleged that producer prices have been kept too low as a result. This may have been true in the late 1960s and early 1970s, but it has not been true in recent years. /1 At the then prevailing exchange rate, this implied a milled rice producer price of approximately $280 per metric ton, which is roughly in line with then prevailing international market prices. The effect of the devaluation was to reduce the official rice support price effective February 1979 to the equivalent of about $210, which is, of course, far below the import parity level. - 126 - Table 10: PADDY SUPPORT PRICE AND OTHER MAJOR PRICE INDICES, 1972-77 (1972 = 100) Jakarta Price index of 12 Jakarta cost wholesale major food items Paddy floor Urea price of living rice price in rural markets price index index index index of Java and Madura 1972 100 100 100 100 100 1973 145 100 128 156 152 1974 200 154 170 160 182 1975 280 231 209 197 205 1976 325 308 237 243 260 1977 343 280 267 264 280 Source: BULOG, Bank Indonesia, Indikator Ekonomi. 3.142 The data in Table 10 suggest that relative price shifts within the economy over the period 1972-1977 have generally tended to favor rice producers although their relative gain has been slightly eroded since 1975. Information on producer prices for other crops is not available. On the retail level, rice prices in rural markets of Java and Madura appear to have moved more or less in harmony with the prices of other major food crops, as is shown in Table 11. Rice prices increased somewhat less fast, however. The official paddy support price (Table 10) on the other hand increased faster than rice retail prices which suggests that marketing margins, or milling costs, or both have declined in relative terms. On the whole, it seems plausible that there have been no major shifts in the relative profitability of rice production vis-a-vis other staples. Table 11: RETAIL PRICE INDICES FOR MAJOR FOOD ITEMS IN RURAL MARKETS OF JAVA AND MADURA, 1972-1977 (1972 = 100) Rice Maize Soybeans Groundnuts Cassava Sweet potato 1972 100 100 100 100 100 100 1973 154 131 156 140 172 176 1974 163 176 201 217 139 151 1975 196 226 258 232 181 196 1976 259 290 276 271 289 290 1977 278 266 308 319 301 313 Source: Indikator Economi. - 127 - 3.143 The question how and when to adjust domestic rice prices in the post- devaluation situation is undoubtedly one of the key domestic pricing policy issues facing the Government. The price of rice has a major practical and psychological influence on many other prices throughout the economy, parti- cularly on minimum wages. In fact, the rice price and the exchange rate of the rupiah are probably the two most important pricing policy instruments available to the Government of Indonesia. With regard to rice, there are conflicting objectives to be achieved and definition of the "best policy" clearly depends on priorities which may change over time. The devaluation opens the possibility to increase producer prices faster and somewhat more than otherwise would have been feasible. But there does not seem to be an overriding need to quickly restore approximate parity between domestic and international rice prices. In fact, a major sudden increase in the rupiah price of rice to restore such parity might defeat one of the principal objec- tives of the devaluation, namely a significant relative price shift between tradable and non-tradable goods and services. Prior to the devaluation there seemed to be no indication that an official paddy support price of Rp 85 per kg was inadequate from a production incentive point of view. A temporary consumer subsidy on imported rice may have to be accepted as an element of post-devaluation economic management. 3.144 Another reason underlying the view that there is no need for a major immediate upward adjustment of the paddy support price following devaluation is that the short-term price elasticity of supply is probably rather low because of rigidities in the supply of land and irrigation water. Practically all available irrigated land is devoted to rice. Upland rice production is relatively insignificant and has steadily declined since 1968. The short-term supply response to a support price increase may furthermore be limited as only a relatively small proportion (about 30%) of total rice produced enters the market. Most rice is consumed in the households and villages where it is produced. 3.145 A reduction in the relative price of fertilizer (either through a higher paddy price or through lower fertilizer prices) may have some impact on fertilizer demand, but by and large the present fertilizer price does not seem to be a. constraint to rice production. Timely availability of adequate fertilizer supplies is probably a much more important factor than price. On balance, it seems that no major immediate rice producer or fertilizer price adjustments are needed. After the transitional post-devaluation period, moderately higher price increases than would otherwise have been granted, would be consistent with both distributional and supply objectives. Supply and Demand Prospects for Major Secondary Food Crops 3.146 The 1968-77 trend production growth rate for the five major secondary food crops (cassava, maize, sweet potato, groundnuts and soybeans) was about 1.6% p.a. but because of declining exports, domestic supply increased somewhat faster (about 2% p.a.). Together they account for about 25% of food energy - 128 - consumption in Indonesia. Exports have now virtually disappeared and extra- polation of past trends suggests the possibility of deficits, rising prices, or imports which would compound the food security problems associated with projected rice deficits. Small quantities of maize and soybeans are already being imported. 3.147 This suggests the need for far greater emphasis on the production and consumption of secondary crops than in the past. It should be technically possible to achieve annual production increases of 3-3.5% for most secondary crops, comprising a 1% annual increase in area (all outside Java) and a 2.5% yield increase. Table 12 below provides a few international yield indicators suggesting that, in contrast to rice, Indonesia's yields of secondary food crops are comparatively low. Table 12: COMPARATIVE YIELDS OF SECONDARY CROPS (1974-76 average; ton/ha) Indonesia Thailand Philippines Malaysia Vietnam Maize 1.06 2.36 0.84 n.a. 1.26 Cassava (fresh wt.) 8.39 15.22 6.63 17.86 7.39 Sweet potatoes (fresh wt.) 7.26 8.29 5.36 14.26 5.24 Groundnuts (in shell) 1.27 1.29 0.63 n.a. 1.06 Soybeans 0.75 0.96 0.98 n.a. 0.61 Source: FAO Production Yearbook, 1976. 3.148 Consumer preferences for rice could run counter to the need for a food production strategy placing greater emphasis on secondary crops. But consumer preferences could change over time in response to relative price shifts and public relations efforts. The Government's power to change relative consumer prices is at present limited to changing the price of rice because there are no national or regional marketing agencies intervening in the markets for other crops (except maize in East Java). As mentioned earlier, effective Government intervention in the markets for secondary food crops is more difficult to organize because of the greater perishability of those crops, in particular fresh cassava. Most major secondary food crops are grown under subsistence economy conditions. Farmers have no guaranteed market, there are strong spatial and seasonal price differentials and agronomic, marketing, and processing support services are underdeveloped, particularly outside Java. - 129 - 3.149 Land availability is no constraint to area expansion for secondary crops. Unalienated arable land with a slope of less than 8% is estimated at about 23 million ha, 75% of which is located in Sumatra and Kalimantan. /1 The present area harvested for secondary crops is of the order of 5 million ha or less than a quarter of estimated remaining land resources with less than 8% slope. The greatest immediate supply potential, however, lies no doubt in productivity increases, particularly in Java which accounts for an estimated 70% of total secondary crop production in Indonesia. The ultimate potential for secondary crop production relative to current production levels is probably far greater than it is in the case of rice. Unless deliberate steps, including in particular the assurances of market outlets, are taken to encourage the wider use and export of secondary crops, it seems likely that rice will be grown in areas better suited for other crops and that these lands, especially outside Java, will not be put to their best agronomic use. Such steps would include improved and increased research, extension and marketing services. Capital investments required would be relatively modest, except in opening up new areas for transmigration and other settlement. 3.150 From all angles, it seems essential that greater emphasis is given to the production and consumption of secondary crops. Failure to achieve a gradual shift in the overall food production and consumption pattern from rice towards other crops could compromise other development objectives because of the cost and risks (vulnerability) associated with excessive rice import dependency. In addition to greater emphasis on the production and consumption of secondary crops, a comprehensive food strategy may also require higher rice prices to the consumer to slow down demand growth. Transmigration 3.151 To achieve a secondary food crop production target of 3.5% p.a. new land will have to be opened up. And it is in this context that transmigration could make a crucial contribution to the solution of Indonesia's food problem as well as to national and regional development efforts in general. It would not be realistic, however, to expect transmigration areas to become significant surplus food areas in the near future. Settlement based on a land allocation of 5 ha per family, including initially 1.25 ha for food crop production would under present average yields, assure food self-sufficiency but no substantial surplus in the early years./2 Eventually, selective /1 Source: D. Muljadi, Sumberdaya tanah kering, penyebaran dan potensinya untuk kemungkinan budaya pertanian. Kongress Agronomi, Bogor, 1977. /2 Average food energy produced per ha under secondary crops outside Java in 1976, was estimated at 6.2 million calories. A family of 5 would require a minimum for own consumption of about 4 million calories. - 130 - mechanization and productivity increases could turn transmigration areas into significant food surplus areas but for these longer term prospects to material- ize, assured market outlets and adequate processing storage and shipping facilities would have to be built up simultaneously. Wheat and Sorghum 3.152 Wheat is rapidly becoming important as a convenience food (bread and noodles) in both urban and rural areas, in substitution for rice. In 1977, wheat is estimated to have accounted for about 3% of total food energy consump- tion in Indonesia. Imports were around 1 million tons. The observed expendi- ture elasticity of demand is high (at least unity) in spite of the fact that before the devaluation, bread and wheat flour were sold domestically much above their import parity levels. Wheat flour and rice prices were about the same in Indonesia whereas the price of imported wheat was less than half the price of imported rice. It should be stressed therefore, that if and when wheat milling and marketing margins come down, consumer demand for bread may be expected to increase rapidly, but the effect of the devaluation will push in the opposite direction. However, even after the devaluation, wheat is a lower cost cereal per unit of food energy than rice and since it is traded internationally on a much larger scale, Indonesia would be less exposed to the risk of bidding up the international wheat price than it is with rice. 3.153 Whereas an unrestricted wheat import policy may be useful as a temporary component of an overall food strategy, there is need for caution when taking a longer term perspective. Wheat imports could rapidly become very large indeed and create a permanent import dependency because the agronomic potential for growing wheat in Indonesia appears to be very limited. Sorghum on the other hand - though relatively insignificant as a food crop in Indonesia at the present and primarily grown as a subsistence crop or feedgrain in drier areas - might have some limited potential as a substitute for wheat in composite flours to make bread or other cereal products. This would, of course, require extensive technical research and testing of consumer acceptance. The major potential for sorghum, however, is more likely to be as feedgrain for both domestic use and export. -131- CHAPTER 7: PUBLIC SECTOR RESOURCES AND EXPENDITURES Introduction 3.154 One of the most dramatic immediate effects of the recent devaluation is a drastic short-term improvement in the Government's budgetary situation. The Government of Indonesia is a net exporter (it earns more foreign exchange than it spends in foreign exchange) and it therefore benefits from the devalu- ation in much the same way as other exporters. Oil revenues, which accounted for roughly half of total budget revenues and for all of budget savings, are earned, at the source, in foreign exchange (US dollars) and therefore increased as a result of the devaluation by about 50% in rupiah terms; for 1979/80 this means that oil revenues will amount to about Rp 3.0 trillion or Rp 1.0 trillion more than expected earlier. Together with the effects on some other taxes (e.g. LNG revenues and various international trade related taxes), this would result in total budget revenues of close to Rp 1.5 trillion (or about 30%) in excess of earlier expectations. After deduction of devaluation related incremental rupiah expenditures (including foreign purchases, external debt service, some addi.tional price increases for local purchases and sharply increased consumer subsidies to prevent the price of basic essentials from rising too suddenly), it should prove feasible to achieve an incremental net budget surplus of Rp 200-300 billion in the 1979/80 fiscal year. Neutraliza- tion of all or most of this surplus would be an indispensable element of a strategy aimed at mitigating the inflationary impact of the devaluation. While in the short run additional consumer subsidies may be needed as transitional measures aimed at preserving monetary stability, they should not be permitted to become a permanent feature of the post-devaluation situation. 3.155 While short-term budget prospects have improved significantly, it is for reasons explained in Chapter 1, nevertheless, expected that the pressure on public sector resources will increase considerably in the medium-term. The main reason for this is that under present domestic oil pricing policies, expected oil sector developments will lead to a greater relative decline of Government oil revenues net of subsidies,.than of the value of net oil exports. The expected oil sector developments will also be felt on the balance of payments but a number of compensating factors, including the export promotion effects of the recent devaluation, are likely to prevent the emergence of a foreign exchange shortage in the medium-term. 3.156 In the absence of positive fiscal policy action it is unlikely that Government revenues could grow faster than about 2-3% per annum in real terms after 1979/80. This means that Government savings in real terms would almost certainly decline as a percentage of GNP which could frustrate public sector development efforts and eventually require a cutback in essential social services and projects. A shortage of budgetary rupiah resources could also hamper the effective mobilization of associated' foreign funding. With vigorous fiscal policy action, including substantial domestic oil price increases, it should be possible to raise the growth rate of net Government revenues (gross revenues minus budgetary subsidies) to about 6.5% per annum in real terms (or about the same rate as the expected medium term GNP growth rate). -132- Domestic Oil Pricing 3.157 Although the devaluation has temporarily reduced the pressure on public sector resources and thereby delayed the need for additional taxation in other forms, it is fair to say that domestic oil pricing has remained one of the most important fiscal policy issues facing Indonesia. Domestic oil consumption is at present not taxed at all. In fact there is a budgetary subsidy which in 1978/79 may amount to about $250 million./1 And, as has been observed in Chapter 1, this budgetary subsidy is only a fraction of the true economic subsidy. The Corporate Tax on oil accounts currently for more than half of total revenues and more than 10% of GNP. Most of the oil tax is saved and used for investment. 3.158 Domestic oil consumption in Indonesia is about to reach the point where the crude oil equivalent of that consumption will begin to exceed the total amount of inexpensive crude available to the country under present contractual arrangements. The sources of inexpensive crude are the pro-rata /2 shares of the Government and Pertamina in the crude oil produced by foreign oil companies operating under "Contracts of. Work" or "Production Sharing Agreements" and Pertamina's own production. This is a very simplistic presentation of the actual situation - Pertamina does not necessarily use that particular crude to supply the domestic market and in addition there are substantial import and export flows of refined products - but it is neverthe- less a convenient presentation that helps to focus the issues. The crude equivalent of domestic oil consumption has in the past been lower, but growing much more rapidly, than the amount of inexpensive crude available to the Indonesian Government. Once the former is equal to or exceeds the latter - as is about to happen - any increment in domestic consumption would have to be priced at international prices in the home market to prevent the need for additional budgetary subsidies. The budgetary implications of policy choices with regard to domestic oil pricing are potentially very large. Most other individual fiscal policy measures that could be taken to increase revenues are less important by comparison and generally require greater administrative effort. 3.159 To illustrate the financial magnitudes involved, Table 13 below compares Government revenues from oil under three alternative domestic pricing policy options. Option 1 would be to require the consumer to pay a price /l This amount excludes supplementary estimates that will be needed if domestic oil prices in rupiah terms are not adjusted for the effects of the devaluation of November 1978 and the January 1979 OPEC price increase. /2 Pro-rata crude is a form of taxation whereby Indonesia receives a certain proportion of crude produced by foreign companies at production cost plus $0.20 per bbl up to a maximum of 25% of their total crude production. Production costs in the case of "Contracts of Work" were on average about $0.51 per bbl in 1977 and for companies working under "Production Sharing Agreements" the average was about $2.79 per bbl. -133- which only covers the actual cost of production, refining, and marketing of oil products (but not the cost of Corporate Tax on incremental crude required for the domestic market), and to pay Pertamina a (rapidly) growing subsidy to cover the difference between the full cost of this incremental crude and domestic sales prices. Only exported oil would be taxed under this option. Option II would be to eliminate the present budgetary oil subsidy and to pass on to the consumer all incremental cost of incremental oil consumption, including taxation due to Government under present contractual arrangements. Under this option the Government would receive the same revenues on incremental domestic consumption as on exported oil. Option III would be to remove all explicit and implicit (budgetary and economic) sub- sidies. This means that the Government would collect the same amount of revenue per barrel whether the oil is sold abroad or domestically. Table 13: ESTIMATED CORPORATE TAX ON OIL, UNDER THREE ALTERNATIVE DOMESTIC OIL PRICING POLICY OPTIONS, 1979/80-1983/84 (Rp trillion) Total 1979/80 1980/81 1981/82 1982/83 1983/84 Repelita III International oil price index (1976:=100) 117 127 135 143 152 Option I 3.1 3.1 3.3 3.6 3.8 16.9 Option II 3.3 3.4 3.7 4.1 4.3 18.9 Option III 4.0 4.1 4.5 5.0 5.4 23.0 Source: Table 5.3 Quantitative Projections Appendix. Oil production and export assumptions are spelled out in Part III, Chapter 1, Table 1. 3.160 It is evident from these estimates that the domestic oil pricing issue is of great quantitative significance for the evolution of public sector finances in the future. The difference in the Government's net financial position between Options I and II (under the international oil price assumption) would be of the order of Rp 2.0 trillion (US$3.2 billion) in current prices over 5 years, or about 1% of GNP during that period./l The difference in the Government's net financial position between oil pricing policy Options I and III (elimination of all implicit and explicit domestic consumption subsidies, i.e., equal tax treatment of domestic and foreign consumers) would be Rp 6.1 trillion (US$9.8 -billion, or about 3% of GNP). 3.161 It should be stressed that all these calculations are based on the standard assumption that the growth of domestic oil consumption will steadily /1 The difference is equal to the amount of incremental subsidies that would have .to be paid under Option I. -134- decline from 12% in 1979/80 to 8.5% in 1983/84. This is, of course, not entirely realistic since the rate of domestic demand growth is in part determined by domestic oil pricing policies. Under policy Option I, domestic oil prices would be lower than under Option II. Therefore domestic demand would presumably be higher, net oil exports lower and revenues also lower than indicated in Table 13. Similarly, domestic prices would be lower under Option II than under Option III and the actual difference between the Govern- ment's net oil tax revenues under the two options would be even wider than suggested by Table 13. The relative and absolute magnitudes are so large, however, and the main issue so clear that any further refinement of the argument seems unnecessary. A parallel argument in favor of higher domestic oil prices can be constructed with reference to their positive impact on export earnings. 3.162 Pricing policy Options I, II and III are used for illustrative purposes only. There are, of course, many intermediate possibilities, and Option III, while extreme in relation to current Indonesian domestic oil pricing policies, is not at all extreme by the standards of many oil importing countries that impose heavy domestic sales taxes on top of the OPEC export price, such that their domestic retail prices of oil products are a multiple of domestic Indonesian prices. 3.163 In the post-devaluation situation, under Option I, the weighted average retail price of oil products in the domestic market would have to be increased by approximately 40% /1 from the present level of Rp 32 per liter./2 Under Option II, assuming immediate removal of the explicit budgetary subsidy, the present average price would have to be roughly doubled while under Option III, assuming immediate removal of all explicit and implicit subsidies, the weighted average retail price of oil products on the domestic market would have to be roughly tripled. Annual price increases required following the initial adjustment would depend, in part, on international oil price movements and on Pertamina's success in reducing costs. 3.164 Such domestic oil price increases as would be required to remove all explicit and implicit subsidies on domestic oil consumption over a period of say five years would undoubtedly pose severe social and political problems and /1 It is difficult to calculate with precision the domestic oil pricing implications for Indonesia of the various policy options. The difficulty lies in the fact that Pertamina currently enjoys a gross sales margin which is believed to be much wider than a reasonable allowance for refining, storage and distribution costs. The need for this extra margin may well decline over time as the rationalization of Pertamina operations and accounts, started after the crisis of 1975, progresses. This could reduce somewhat the magnitude of domestic retail price increases required. /2 This is the current (1978) weighted average Pertamina sales price for all oil products sold in the domestic market. - 135 - they would also have a strong inflationary impact on the economy. Therefore, complete removal of all subsidies (Option III) may not be feasible within the next five years. Allowing for some cascading and multiplier effects, a 40% domestic oil price increase as would be required under Option I, would raise the general cost of living index by around 2.0%./l But that would seem to be a tolerable price to pay for what would amount to a very significant national savings effort. Table 14 below shows the approximate breakdown of domestic oil consumption by main product groups. Table 14: SHARES OF VARIOUS OIL PRODUCTS IN DOMESTIC SALES BY VOLUME AND VALUE, AND PRICE PER LITER IN 1978 1976/77-1978/79 Average Sales Volume Sales Proceeds 1978 Prices % % rupiah per liter Kerosene 37.3 21.4 18 Diesel and fuel oil 41.8 31.9 24 Gasoline 18.5 41.3 71 Other 2.4 5.4 70 Total 100.0 100.0 32 3.165 It is evident that the domestic oil subsidy primarily benefits kerosene and diesel consumers. Significant increases in the weighted average domestic oil price are hardly possible without significant increases in the price of both diesel and kerosene. The share of gasoline in total consumption is too small for this product to carry the entire or most of the burden. Diesel and kerosene prices have to move in harmony because of their technical substitutability in certain end uses. Some of the complications involved in raising the price of kerosene have already been discussed in Chapter 2. 3.166 In the public sector resource projections used in this Chapter, it has been assumed that the price increases required under Option I would take place within 12 months after the devaluation, and that price levels required under Option II would be reached by the end of Repelita III. As mentioned, this would require a steep initial overall price increase of around 40% (though the percentage increase does not have to be the same for all products). Annual price increases required thereafter, through 1983/84, would amount to around 20%, depending in part, as indicated earlier, on the development of inter- national oil prices and Pertamina's cost levels. This would have the effect of gradually removing the entire budgetary subsidy and of gradually deriving from incremental domestic consumption the same revenues earned as on exported oil. The elimination of all subsidies (Option III) could perhaps serve as a longer term target. In spite of the significant domestic oil price increases /1 About 3.0% of GNP is currently spent on oil products. - 136 - assumed under Option II, the real value of oil revenues (in constant price rupiahs) would remain roughly constant between 1979/80 and 1983/84, while the share of oil revenues in GNP would decline from around 11% in 1979/80 to around 8%/1 in 1983/84. 3.167 These numbers and ratios underline the magnitude of the expected public sector resource problem and they also suggest that domestic oil price increases should not be regarded as a substitute for additional domestic resource mobilization efforts in other fields. Growing LNG revenues may offer significant relief. If all current production expansion plans and projected export prices materialize, Government LNG revenues would account for more than 1% of GNP by 1983/84 or about one-third of the reduction in the share of oil revenues. A greater general tax effort in addition to higher oil prices will almost certainly be needed to prevent a decline in the share of Government savings in GNP. The Need and Scope for Additional Non-Oil Tax Efforts 3.168 To achieve a net revenue /2 growth rate of about 6.5% p.a. in real terms per annum for the next five years, given the expected decline of the share of oil revenues (Option II) and taking maximum plausible LNG revenues into account, non-oil revenues would have to grow by about 7.5% p.a. in real terms during Repelita III and all budgetary,subsidies would have to be gradually eliminated by 1983/84. This would raise the share of non-oil revenues in GNP from about 8.6% in 1977/78 to about 9.5% /3 by 1983/84 which is still relatively modest by international standards. Table 15 shows some comparative data for other developing oil exporting countries. Table 15: SHARE OF NON-OIL GOVERNMENT REVENUES IN GNP IN SELECTED COUNTRIES Indonesia 1977 8.6% Iran 1976 11.7% Nigeria 1973 10.2% Venezuela 1974 12.7% Mexico 1975 12.5% /1 Of which about 1% (about Rp 600 billion in current prices) would be on account of domestic consumption. /2 The term net revenues refers to budget revenues minus subsidies. /3 Excluding revenues on account of domestic oil consumption which would reach 1% of GNP by 1983/84. - 137 - 3.169 To reach the goal of a 6.5% real increase in net Government revenues during the next five years, the 6verall resource mobilization effort expressed as a percentage of incremental GNP during Repelita III is of the order of 20%. Approximately one third of the additional revenues (in current rupiah terms) would accrue to the Government in the form of revenues from exported oil and LNG but about two thirds represents the magnitude of the domestic tax effort needed in the form of increased non-oil revenues and elimination of all budgetary subsidies. A non-oil revenue growth (in real terms) of 7.5% beyond 1979/80 and a gradual elimination of subsidies by 1983/84 imply a buoyancy factor with respect to GNP of 1.4 /1 during Repelita III. 3.170 In spite of the improvements in tax administration made tn recent years, there remains scope for significant further improvements in the collection of taxes in Indonesia, to make the tax system more income elastic, and also to make it more equitable. For example, personal income tax collections are still very low (0.8% of GNP in 1978/79) and relatively inelastic. Table 16 provides some comparative information on tax structures in selected Asian countries. If the tax effort is successful, total Government revenues as a percentage of total GNP would remain about constant around 18-19%, if GNP grows at 6.5% per annum in real terms. Table 16: COMPARISON OF TAX STRUCTURES IN SELECTED ASIAN COUNTRIES (1974-76 AVERAGE SRARE OF TAX REVENUES IN GNP) 1976 /a Taxes per Personal Total on Total Total capita income Corp. direct int'l Sales ind. tax Country (US$) taxes taxes taxes trade taxes Excises taxes rev. Indonesia /b 280 0.7 1.6 2.8 2.8 1.0 0.8 4.7 7.4 India /c 140 1.4 1.3 3.3 2.1 2.7 4.3 12.7 16.1 Pakistan 180 1.2 0.4 1.6 5.1 1.1 3.9 10.8 12.5 Philippines 420 1.3 2.0 3.3 4.3 2.1 2.3 10.5 13.8 Thailand 380 1.0 1.3 2.6 4.5 3.1 2.6 11.5 14.1 /a 1978 World Bank Atlas. lb Non-oil tax reveiiues as percent of GNP. /c Includes both Central and State Government tax revenues. Source: IBRD Economic Reports on individual countries. /l This buoyancy factor reflects both the increase in non-oil revenues and the elimination of budget subsidies, through inter alia, higher domestic oil p1rices. - 138 - 3.171 Corporate tax collections (including withholding taxes) are also relatively modest. Over the past four years Bank Indonesia accounted for about 40% of state enterprise corporate tax payments and about 20% of total corporate tax receipts. The bulk of the remaining state enterprise corporation tax payments is accounted for by a limited number of other state enterprises./l A majority of Indonesia's state enterprises (estimated at over 200) pay little or no income tax. Corporate income tax collections from private corporations are also relatively low due to the extensive system of investment incentives (tax holidays, etc.), late payments and weak enforcement of tax laws. This again is primarily related to the current shortage of tax inspectors. 3.172 There is also scope for improved collection of domestic sales taxes and excises which together account for about 2.5% of GNP. It is often suggested that the excise on kretek (clove) cigarettes (which account for 60% of cigarette consumption in Indonesia) is much lower than it ought to be because the tax is levied on a bandrol price which is much lower than the actual retail price. The manufacturing of kretek cigarettes, however, is an important source of industrial employment in Indonesia. Because of their cone shape they are generally hand made. It is estimated that around 200,000 people find permanent employment in this industry, notably in Java. Therefore, any shift in demand from kretek to mechanically produced "white" cigarettes that might result from a higher excise on the former could have adverse employment implications. 3.173 With regard to the domestic taxation of goods and services generally, movement towards a general sales tax at the retail level or a value added tax, though eventually desirable, may be premature at this stage because of administrative complexity. The medium-term objective should probably be to improve the present system of a single stage taxation at the manufacturing level, with emphasis on increasing its yield, and improving its progressivity (luxury consumption items are still relatively lightly taxed). 3.174 With regard to international trade taxes the emphasis should not be on increasing rates but on movement towards a more uniform rate structure, greater reliance on sales taxes levied equally on imported and domestically manufactured goods and on better collection. In the post-devaluation situation there may be scope for some temporary export tax increases, but in the longer run it seems more appropriate to phase them out altogether and replace them by sales taxes or royalties applying to foreign and domestic sales in the case of commodities such as timber and hard minerals to capture the "rent." 3.175 Although Indonesia's modest non-oil revenue performance is generally a collection problem and not a rate problem, there are certain areas where new taxes or significantly higher rates could be considered. There is undoub- tedly scope for increased taxation of the rich. This applies in particular to land taxes and urban property taxes. The present property tax (IPEDA) accounts for only about 3% of total non-oil tax revenues collected by the central Government. Ninety percent of IPEDA revenues are transferred to lower level /1 Including in particular Government tree crop estates in Northern Sumatra and the State tin mining and smelting company. - 139 - Governments (Provinces and Kabupatens). There appears to be a wide gap between actual and potential property tax collections. There is an urgent need for IPEDA reform to improve the budgetary position of Provincial and Kabupaten Governments. In addition, steps may be required to regulate the ownership of land./1 Changing patterns of land ownership and tenure may be harmful to agricultural productivity and to social stability. Some of the ongoing changes - though not fully understood and incompletely documented - are probably related to the gradual erosion of traditional social structures reported to be taking place at the village level. This process may contribute to the concentration of political and economic power in the hands of people, often strangers, who do not necessarily have a harmony of interests with small farmers and other local residents. The matter clearly requires intensive study. Its importance extends far beyond the possible fiscal implications and, if undestrable trends need to be corrected, fiscal policy measures may not be adequate by themselves. Non-Tax Revenues 3.176 Not all additional revenues need come from higher domestic oil prices, other forms of taxation or improved tax collection. It would also seem to be desirable from a revenue, an allocative and a distributional point of view, to bring the output pricing of certain public sector corporations more in line with their actual economic costs. Cost reductions through improved operating efficiency are believed to be possible in many public service enterprises. Better financial performance of state enterprises reduces their dependence on the central Government budget and hence contri- butes to an improvement of the public sector resource position in much the same way as higher taxes. Other Public Sector Resources 3.177 External borrowing by the public sector will be discussed in the next Chapter., Here it suffices to say that net resource transfers from abroad (gross disbursements minus debt service payments) are unlikely to grow very much (in real terms) during the next five years and are almost bound to remain below the levels of recent years. These projections are based on estimated future aid flows, commercial borrowing capacity as related to export performance and debt service obligations resulting from debt outstanding at the beginning of the period and new commitments. 3.178 The aggregate,amount of net resource transfers from abroad to the public sector during the five-year period 1979/80-1983/84 is estimated at Rp 2.5 trillion (US$4 billion) in current prices, or a little over 1% of GNP. During the previous Plan period, 1974/75-1978/79, net resource transfers from abroad amounted to about Rp 2.3 trilli6n (US$5.3 billion) in current prices, or about 3% of GNP. The expected relative and absolute reduction in /1 The Government's intention to tighten land ownership regulations was announced by H.E. President.Suharto, in his Annual Address of State before the House of the People's Representatives, Jakarta, August 16, 1978.. - 140 - net resource transfers from abroad will have a significant influence on the overall public sector resource picture during the next five years. It means that, a major domestic resource mobilization effort notwithstanding, there will almost inevitably be some decline in the relative share in GNP of total domestic revenues plus net foreign resource transfers. 3.179 During Repelita II, public sector domestic monetary financing (net borrowing from the banking system) added about Rp 700 billion in current prices, or about 1% of GNP, to public sector resources. If efforts to stimulate private sector activity are to be successful, the Government should not resort to monetary financing of its operations and should attempt to limit to a bare minimum the extent to which public sector enterprises lay claims on increases in total liquidity during Repelita III. The projections which follow assume no reliance on public sector monetary financing to augment public sector resources. Overall Public Sector Resources Picture 3.180 Unfortunately it is not possible to construct a comprehensive picture of overall public sector resources because information on the savings (or dissavings) of public sector enterprises which do not flow through the central Government budget is not available. Table 17 below presents an approximate picture of Government revenues and public sector net resource transfers, assuming (i) real GNP growth of 6.5% p.a., (ii) domestic oil pricing Option I as of 1980/81 and Option II by 1983/84, (iii) non-oil revenue growth of 7.5% p.a. between 1978/79 and 1983/84, and (iv) gradual elimination of all budget subsidies by 1983/84. The other important assumption underlying Table 17 is that oil production and exports will reach projected levels (Table 1) and that international oil prices will move in accordance with the World Bank Commodity Division's projections (Table 13). 3.181 Table 17 suggests that under these assumptions, public sector resources available for the financing of both recurrent (routine) and develop- ment expenditures could grow at an annual average rate of about 5.5% in real terms during Repelita III or somewhat less than projected GNP growth (6.5%). It should be emphasized again that this otherwise rather unimpressive result is dependent on the success of a truly major domestic resource mobilization effort. If the growth rate of non-oil revenues would be considerably less and if budgetary subsidies, particularly on oil, were not to be eliminated, aggregate public sector resources would probably show no increase in real terms after 1979/80. Since there is usually much less flexibility to reduce routine expenditures than development expenditures, the latter might, in the absence of a major domestic resource mobilization effort, have to be reduced in real terms. Public Sector Investment 3.182 Table 18 shows two alternative public sector investment pictures through 1983/84. The first is based on the assumption of oil production levels and international price developments assumed in Tables 1 and 13, and a high domestic resource mobilization effort and the second on the - 141 - assumption of a 10% shortfall in oil and LNG revenues and a lower non-oil revenue effort. In both cases net resource transfers from abroad are assumed to be the same./l The growth of recurrent (routine) expenditures /2 is assumed to be limited to 6.5% p.a. (in real terms) beyond 1979/80 under both revenue growth assumptions. This clearly is an austerity assumption which may require special measures to be realized. Table 18 leads to the following important conclusions: /1 This is a simplistic and probably somewhat unrealistic assumption as the low revenue scenario may well lead to reduced GNP growth and a shortage of rupiah counterpart funds to mobilize associated foreign funding. Therefore, Table 18 tends to underestimate the difference between the two alternative estimates of public sector investible resources under the high and the low revenue scenarios. /2 Excluding budget subsidies and external debt service payments. - 142 - Table 17: PUBLIC SECTOR RESOURCES, 1979/80-1983/84 (Rp billion current prices) Projected Total Total Est. Repelita II Repelita III (78/79) (74/75-78/79) 79/80 83/84 (79/80-83/84) 1. Oil & LNG revenues Ia 2,400 8,120 3,325 4,975 20,850 2. Non-oil revenues 2,000 6,672 2,450 5,100 18,175 3. Total revenues (gross) lb 4,400 14,792 5,775 10,075 39,025 4. Subsidies /b 300 1,111 550 - 1,200 5. Total revenues (net) 4,100 13,681 5,225 10,075 37,825 6. Net resource transfers from abroad 200 2,301 350 575 2,525 7. Total resources gross (3+6) /c 4,600 17,093 6,125 10,650 41,550 8. Total resources net (5+6) /c 4,300 15,982 5,675 10,650 40,350 As % of GNP Total resources - gross 21.3 22.1 22.2 19.8 20.6 Total resources - net 19.9 20.6 20.6 19.8 20.0 Rp billion constant 76/77 prices Total resources - gross 3,566 16,426 3,850 4,675 21,125 Total resources - net 3,335 15,278 3,500 4,675 20,425 /a Revenues resulting from present contractual arrangements. LNG revenues are before public debt service payments. /b Subsidies on oil, food and fertilizer. It has been assumed that subsidies, which are expected to amount to Rp 550 billion in 1979/80 will be gradually eliminated during Repelita III. /c Excluding monetary financing, which during Repelita II amounted to about Rp 700 billion in current prices, or 0.9% of GNP. Source: Tables 5.1-5.5 - Quantitative Projections Appendix. - 143 - - Under the high revenue growth scenario, budget savings during Repelita III would be about Rp 3.4 trillion (US$5.4 billion) higher (in constant 1976/77 prices) than during Repelita II and the share of budget savings in GNP would increase from 8.4% to 9.3% on average for the two periods. - Together with net resource transfers from abroad, public sector investible resources during Repelita III would be about Rp 2.3 tril- lion (US$3.6 billion) higher (in constant 1976/77 prices) than during Repelita II but the share of this total in GNP would decline from 11.3% to 10.5% on average for the two periods. The average annual growth rate of public sector investments during Repelita III under the high revenue growth scenario could be of the order of 5.5%. - Under the low revenue growth scenario, which would still require a not insignificant domestic recource mobilization effort, budget savings during Repelita III would not grow at all in real terms and their share in GNP would decline from 8.4% to 7.4% on average for the two periods. - Together with net resource transfers from abroad, public sector investible resources during Repelita III would be roughly the same in real terms as during Repelita II and the share of this total in GNP would decline from 11.3% to 8.6% on average for the two periods. Under the low revenue growth scenario, public sector investments during Repelita III would not increase in real terms. 3.183 Even under the high revenue growth scenario, difficult choices will have to be made between projects and programs competing for the same limited resources. It should be possible, however, to accommodate most of the high priority projects in agriculture (irrigation, support services and land settlement, including transmigration), industry (including in particular credit for small and medium scale enterprises), and social services (in particular water and housing). It may be necessary, however, to postpone or redesign some of the large lumpy projects in transportation and industry that are currently being considered, unless alternative private foreign investment sources can be utilized in a manner consistent with longer term balance of payments considerations. Under the low revenue growth scenario the situation would be much more difficult. It is possible that even some high priority projects may have to be postponed or scaled down. 3.184 For most of the past five years the emphasis in planning was on the preparation of suitable projects and programs. Resources were not the principal constraint. In fact, large budgetary surpluses were accumulated during the :Last few years, up to the present. This situation is expected to change in the near-term future, even if a major domestic resource mobilization effort as suggested is undertaken. A judicious choice among projects and programs will therefore be required to ensure that those that have the highest priority wiLl be implemented. Table 18: BUDGET SAVINGS AND INVESTIBLE RESOURCES /a (billion rupiah) Total Total Repelita II Repelita III 74/75-78/79 79/80 80/81 81/82 82/83 83/84 (79/80-83/84) High Revenue Growth /b Total budget revenues - gross 14,792 5,775 6,625 7,650 8,900 10,075 39,025 Subsidies 1,111 550 400 225 25 - 1,200 Total budget revenues - net 13,681 5,225 6,225 7,425 8,875 10,075 37,825 Current expenditures 7,202 2,550 3,150 3,800 4,475 5,125 19,100 Budget savings - current prices 6,479 2,675 3,075 3,625 4,400 4,950 18,725 - constant 76/77 prices 6,100 1,675 1,725 1,850 2,075 2,175 9,500 - as % of GNP 8.4 9.7 9.2 9.1 9.4 9.2 9.3 Budget Savings plus Net Resource Transfers - current prices 8,780 3,025 3,550 4,175 4,975 5,525 21,250 - constant 76/77 prices 8,414 1,875 1,950 2,100 2,325 2,425 10,675 - as % of GNP 11.3 11.0 10.6 10.5 10.6 10.3 10.5 f Low Revenue Growth /c Total budget revenues - gross 14,792 5,450 6,375 7,125 8,000 8,750 35,700 Total budget revenues - net 13,681 4,900 5,925 6,775 7,750 8,600 33,950 Budget savings - current prices 6,479 2,350 2,775 2,975 3,275 3,475 14,850 - constant 76/77 prices 6,100 1,500 1,575 1,525 1,550 1,525 7,675 - as % of GNP 8.4 8.5 8.3 7.4 7.0 6.5 7.4 Budget Savings plus Net Resource Transfers - current prices 8,780 2,700 3,250 3,525 3,850 4,050 17,375 - constant 76/77 prices 8,414 1,700 1,800 1,775 1,800 1,775 8,850 - as % of GNP 11.3 9.8 9.7 8.8 8.2 7.5 8.6 /a Excluding savings or dissavings of public sector enterprises and monetary financing. /b Assuming no shortfall in oil and LNG revenues, gross non-oil revenue growth of 7.5% p.a. in real terms during Repelita III, and a gradual elimination of subsidies by 1983/84. /c Assuming 10% shortfall in oil and LNG revenues, non-oil revenue growth of 4.0% p.a. in real terms during Repelita III and a more gradual reduction of subsidies. - 145 - 3.185 The overall conclusion of this Chapter is that, whereas the recent devaluation has reduced immediate pressures on the budget, it has not removed the need for a major domestic resource mobilization effort in other forms. One of these forms would be the reduction and ultimate removal of the very large additional budgetary subsidies that are likely to be needed immediately after the devaluation in order to prevent sudden, disruptive price shifts in the economy. It is also suggested that, to avoid excessive monetary expansion during the year following the devaluation, all or most of the devaluation induced budgetary surplus (estimated at Rp 200-300 billion in 1979/80) should be neutralized and not used for the financing of additional Government expenditures. As the subsidy on domestic oil consumption has been further increased by a substantial margin as a result of the devaluation, domestic oil pricing may be identified as a priority area for domestic fiscal policy action. - 146 - CHAPTER 8: BALANCE OF PAYMENTS Introduction 3.186 As discussed in earlier Chapters, Indonesia's export prospects were, by and large, not very promising. Indonesia faced an almost inevitable decline of oil export volumes and slow growth of non-oil exports. Net resource transfers were expected to decline rather sharply from their recent levels. As a consequence, balance of payments difficulties would probably have devel- oped in the course of Repelita III. Balance of payments prospects have improved as a result of the recent devaluation. It is now expected that with appropriate support policies, the non-oil export growth rate can be somewhat higher in the medium-term and significantly higher in the longer term, while imports will most likely grow at a slower pace, especially in the short-term. The pre- and post-devaluation balance of payments prospects are discussed in the remainder of this Chapter following some remarks about the projection methodology. Projection Methodology: Current Account 3.187 Apart from the usual uncertainty about future export and import volumes and prices, especially immediately following a sizeable devaluation, there are two special difficulties in projecting the likely evolution of Indonesia's balance of payments. The first is that available historical information on private capital flows (including factor payments) in and out of the country and the amount of private external debt is incomplete. The second is that there are no disaggregated commodity import trade statistics that match the totals for commodity imports in the balance of payments statements as published by Bank Indonesia. The latter show a higher level of imports and are presumed to present a more accurate picture of total imports than the disaggregated statistics based on customs -data and letters of credit openings. The difference between the various import statistics, however, has become so large in recent years that it has become difficult to relate changes in imports to particular developments in the country. 3.188 In view of the sketchy nature of official available information on private capital flows and private external debt, the assumption has been made that the net effect of private capital flows and factor payments in and out of Indonesia on the country's balance of payments is zero. In recent years the net effect has probably been negative, as private foreign investment dropped significantly after 1974. It is, however, likely that higher levels of foreign investment in the future will at least offset outflows resulting from previous and new investments. The assumption of a zero balance of payments effect thus appears reasonable. It means that all projected factor payments and capital transactions refer only to the public sector. This is, of course, a simplification but one that may be permissible for analytical purposes. - 147 - Pre-devaluation Balance of Payments Prospects 3.189 Since 1973/74, imports have grown rapidly, around 14% p.a. in volume terms and 25% p.a. in value terms. Imports of basic foods and capital goods accounted for most of the increase in imports. In 1973/74 capital goods imports accounted for less than 30% of the total imports whereas by 1977/78 their share had reached nearly 50%. Expectations were that with a relative decline of the gross domestic investment rate and a less capital intensive pattern of investment, the rate of growth of capital goods imports would be reduced substantially. But it nevertheless was expected that given international and domestic price relationships, the volume of total imports would have grown at a minimum rate of around 5.5% in the future assuming an income elasticity of around 0.85. 3.190 In recent years, growth of non-oil exports has on the whole been disappointing. Despite significant increases in the export volumes of timber, fish, palm oil and coffee, total agricultural export /1 growth amounted to only 1-2% in real terms since 1973/74. It is considered plausible that with some policy action, the growth rate of total non-oil exports could be roughly doubled from around 2-3% p.a. in real terms since 1973/74 to around 5% up to 1985/86; beyond 1985/86 increased domestic consumption of a number of exportable commodities is projected to reduce the export growth rate to around 4% p.a. up to 1990/91. 3.191 With the projected decline in the oil export volume and notwith- standing significant earnings from LNG exports, pre-devaluation balance of payments prospects through 1990 were rather bleak. Table 18 shows the ex-ante resource gap that would have developed. Given plausible levels of net resource transfers (which will be further discussed below), Indonesia would probably have begun to face balance of payments difficulties early in Repelita III. Ceteris paribus, this would, in turn, have depressed import levels and consequently would have led to reduced investment activity and economic growth. 3.192 The devaluation by itself has not necessarily solved all the balance of payments problems that were to be expected. The Government is, of course, aware that imports might well increase rapidly beyond the next two years if domestic price increases exceed international inflation by a large margin for some years or if the domestic manufacturing sector fails to realize its new potential. Lack of institutional and other policy action may also cause export growth to be slower than should be feasible under the new circumstances. Nevertheless, assuming supporting policy actions and a positive private sector response to new incentives, overall balance of payments prospects have improved in the post-devaluation situation. /1 Agricultural exports are defined to include timber and fish in this Chapter. - 148 - Table 19: PROJECTED RESOURCE GAP, 1978/79-1990/91: PRE-DEVALUATION (US$ billion, current prices) 78/79 79/80 80/81 81/82 82/83 83/84 85/86 90/91 1. Oil & LNG exports 4.6 5.0 5.1 5.4 6.1 6.6 7.4 8.4 2. Non-oil exports /a 3.5 3.9 4.4 5.0 5.6 6.4 8.3 14.1 3. Total exports (1+2) 8.1 8.9 9.5 10.4 11.7 13.0 15.7 22.5 4. Imports (including N.F.S.) /b 8.2 9.4 10.5 11.8 13.2 14.9 18.6 31.2 5. Resource gap (3-4) -0.1 -0.5 -1.0 -1.4 -1.5 -1.9 -2.9 -8.7 6. Net resource transfers /c 0.4 0.5 0.8 0.9 0.9 0.9 1.1 1.5 /a Assuming volume growth rates of about 5% up to 1985/86 and about 4% thereafter. /b Assuming volume growth rates of about 5.5%. /c For details refer tables 4.4 and 4.5, Statistical Projections Appendix. Post-devaluation Balance of Payments Projections Import Projections 3.193 With regard to projected imports, a distinction was made between 5 broad categories, including rice, other consumption goods, intermediate goods, capital goods, and non-factor service payments. In the case of rice it was assumed, on the basis of recent trends, that import requirements would be 2 million tons p.a. through 1980/81 and 2.5 million tons during 1981/82- 83/84, thereafter growing to 3 million tons by 1985/86 and to 3.5 million tons by 1990/91. Rice import requirements could be much lower if a compre- hensive food supply and demand policy as discussed in Chapter 6 is formulated and successfully implemented. Import projections for goods other than rice are based on estimates of the growth of domestic demand and supply. These suggest an average annual import growth rate of 4% p.a./1 (assuming GNP growth of 6.5% p.a.) through 1983/84 and 3% p.a. thereafter. The projected /1 In view of the price effect of the devaluation, volume growth of consumer good imports in 1979/80 may well be lower (or even negative) and somewhat higher thereafter. However, for projection purposes the same annual rate of growth has been assumed up to 1985. - 149 - decline in the growth rate is based on the assumption that Indonesia will become increasingly self-sufficient in a wide range of consumer goods. Intermediate goods import projections are based on an average elasticity of 0.55 with respect to the growth of manufacturing value added through 1983/84, gradually declining thereafter to 0.35 by 1990/91. The decline of the elasticity would be the result of increased domestic input manufacturing and a gradual shift towards a pattern of manufacturing growth which is more closely related to Indonesia's richly varied domestic resource base. 3.194 Capital goods imports are notoriously difficult to project not least because they tend to be non-linear and lumpy. Their growth depends above all on the pattern and level of investment, both public and private. It is conceivable that capital goods imports would decline appreciably as a percentage of gross domestic investment (GDI) if the incentive framework, aided by positive Government action with regard to the pattern of public sector investment and construction methods used, leads to a greater use of labor in the creation of new assets. This should be a policy objective in any event. In the balance of payments projections used in this report, the share of imported capital goods in GDI is assumed to decline gradually from 40% (1975-77 average)/1 to 30% by 1983/84 and to 25% by 1990/91. 3.195 GDI is projected to decline from 20.6% of GDP (1975-77 average) to 19% by 1983/84. A decline is likely in view of the probable evolution of public sector resources as discussed in Chapter 7. The rate of decline will be determined by by oil production levels and international price movements, domestic revenue (savings) efforts and changes in the level and rate of private investment. If private investment expands significantly, as it should, this might compensate for the almost inevitable decline of the share of Government savings in GDP. However, for projection purposes it has been assumed that: GDI will account for a constant 19% of GDP after 1983/84. This is still a respectable investment rate by international standards and higher than the 17% rate that was achieved by Indonesia during Repelita I (1969/70-1973/74)1. With proper allocative incentives and a greater emphasis on agriculture and on employment oriented medium and small-scale manufacturing development, it should eventually be possible with this investment rate to achieve a GNP growth rate of 7-8% p.a. or even more. Net non-factor service payments abroad (freight, insurance, travel, etc.) are projected to grow at 5% p.a. (in real terms). Export Projections 3.196 Export projections for most commodities are based on a combination of current trends and an assessment of domestic supply potential and interna- tional demand. Supply rigidities with regard to oil, LNG, copper, tin, nickel, rubber, and some other agricultural exports and demand constraints with regard to some others suggest that around 85% of total commodity exports may indeed be assumed to be largely exogenously determined, at /1 By comparison, the share amounted to less than 30% during 1973/74. - 150 - least in the medium-term. The main export items on which the devaluation and supporting Government policies could have an appreciable impact, even in the medium-term, are a limited range of agricultural products (including for example quickly maturing oil palm and products whose export volume could be increased at the expense of domestic consumption,/1 e.g. coffee) and manufactures. Government decisions with regard to the proposed LNG expansion and a number of non-oil mineral projects (e.g. aluminum) could also have a significant impact on export earnings before the end of Repelita III. In the export projections it has been assumed that these projects will mature on schedule. 3.197 In the longer term all exports can be influenced by Government policies, but for analytical purposes, manufactures exports have been treated as the main residual item in the balance of payment projections. This was done deliberately to underline the arguments that have been made in this report in favor of a higher rate of labor intensive manufacturing growth and to demonstrate that such a policy, while undoubtedly needed with regard to the needs for employment growth and regional development would simultan- eously be an indispensible element in preserving long term external balance within the context of a high growth strategy. 3.198 The basic assumptions underlying projected net oil export earnings, have been discussed in Chapter 1 and can be summarized as follows: (i) the exportable oil surplus is likely to decline during 1979 and 1980 and recover somewhat during the latter half of Repelita III. Beyond 1983, the exportable surplus would decline; (ii) the international oil price is projected to remain stable in terms of constant dollars, implying nominal price increases of 6% p.a. during 1980-85 and of 5% thereafter; (iii) the net export value per barrel is expected to decline somewhat as higher cost offshore wells and secondary recovery will account for a growing share of total production. On the basis of existing and planned production capacity, net earnings from LNG exports are expected to gradually increase to $1.0 billion by 1983/84 and to $1.4 billion by 1990/91 (in current prices). 3.199 As regards non-oil exports, it should in the post-devaluation situatio be possible to achieve a level of export volume growth which in the medium- term would somewhat and in the longer term significantly exceed the expected growth rates in the pre-devaluation scenario. For the purpose of balance of payments projections it has been assumed that non-oil export growth would amount to about 6.5-7.0% p.a. up to 1985/86 and to around 8% p.a. between 1985/86 and 1990/91. The non-oil export projections /2 assume that the /1 But even for these products there are production constraints which can only be removed in the longer term. /2 For details, see Tables 3.1 and 3.5 of the Quantitative Projections Appendix. - 151 - average long-term growth rates /1 of agricultural and mineral exports would reach around 3% and 9% respectively, while manufacturing export growth has been projected at an average rate of 20% p.a. throughout the projection period. Under these assumptions, manufactures exports would reach a level of about $1.2 billion (in current prices) by 1983/84 and $6.3 billion (in current prices) by 1990/91. In the short term, this growth level would be achieved primarily as a result of projected surpluses of fertilizer and cement, but in the medium and longer term, labor-intensive manufactures exports should provide the bulk of increases in manufactures export earnings. 3.200 The manufacturing sector is the only goods producing sector offering the possibility for very high levels of production and export growth sustain- able over a long period. To get the industrial sector going on a sound basis with as little protection as possible and with considerable export orientation is now perhaps the single most important overall policy requirement from a structural macro-economic point of view. If, with supporting policies and increased private investment, manufactures export growth can be sustained at a rate of 20% p.a., the overall balance of payments situation would remain manageable through 1990/91. Table 20: PROJECTED RESOURCE GAP, 1978/79-1990/91: POST-DEVALUATION /a (US$ billion, current prices) 78/79 79/80 80/81 81/82 82/83 83/84 85/86 90/91 1. Oil & LNG exports 4.6 5.0 5.1 5.4 6.1 6.6 7.4 8.4 2. Non-oil exports 3.6 4.0 4.6 5.2 6.0 7.0 9.4 18.5 3. Total exports (1+2) 8.2 9.0 9.7 10.6 12.1 13.6 16.8 26.9 4. Imports (including NFS) 8.1 9.0 10.0 11.1 12.3 13.7 17.2 27.0 5. Resource gap (3-4) 0.1 - -0.3 -0.5 -0.2 -0.1 -0.4 -1.1 6. Net resource transfers 0.4 0.5 0.8 0.9 0.9 0.9 1.1 1.5 /a For details refer to Tables 3.1 - 3.8 Quantitative Projections Appendix. /1 Between 1976/77 (1975/76-1977/78 average) and 1990/91. - 152 - 3.201 The projections also show that with successful export promotion policies, Indonesia would gradually reduce her dependency on oil. The share of net oil and LNG exports in total exports would decline from close to 60% at present to around 30% by 1990/91. This reduced commodity concentration would provide a healthier basis for future development particularly if the much higher level of industrial growth needed to achieve this goal is based on a pattern of labor-intensive and geographically dispersed development. External Borrowing and Capital Account Projections 3.202 The method used to project the capital account of Indonesia's balance of payments is perhaps somewhat unorthodox but it is geared to the particular circumstances of Indonesia and the concern of the Government to keep debt service obligations below a ceiling of around 20% of current export earnings, including oil and LNG exports calculated on a net basis./l There is no scientific basis for this ceiling, nor should it be regarded as an immutable law that has to be rigidly applied regardless of circumstances but it is a rule of thumb which has some general validity as a tool for external debt management in Indonesia. In recent years the Government of Indonesia has been very cautious not to exceed prudent levels of new external commercial loan commitments. In fact, several hundred million dollars more could have been borrowed prudently in 1976 and 1977. In an effort to limit the external commercial debt exposure of the Government proper, Indonesia has recently started exploring the possibility of other arrangements for the financing of major industrial and infrastructure projects including leasing, unguaranteed borrowing by public sector enterprises or private borrowing, with or without public sector purchase obligation of the products. Such arrangements may, in certain cases, have advantages over Government guaranteed loans or direct Government external borrowing. However, the Government is, of course, convinced that the substance rather than form of future liabilities should remain the main guiding criterion for entering into financial obligations. 3.203 Grants and concessionary loan commitments from multilateral and bilateral aid agencies have been projected on the basis of recent trends and expectations as to what seems plausible in light of current indications. The next step in this iterative projection process was to project debt service payments resulting from existing debt (both outstanding and undisbursed portions) and new concessionary loan commitments. Projected debt service obligations thus calculated in combination with projected export earnings permits the estimation of annual levels of new commercial borrowing consistent with a maximum debt service ratio of around 20%. Thus, net capital inflows were projected in two separate steps not necessarily linked to Indonesia's possible future capital requirements but related to the expected availability of concessionary aid and to the Government's desire to keep the debt service ratio at or below 20%. /l Net oil and net LNG export earnings are defined as gross export values minus (i) imports and other foreign exchange costs of production, refining and marketing; and (ii) factor payments to foreign partners. In this definition "foreign exchange cost" excludes service payments on Pertamina's own debt. - 153 - 3.204 The total of net resource transfers resulting from grants and loans (both commercial and concessionary) projected in this manner plus export earnings yields estimates of projected import capacity. A comparison of projected import capacity and projected import requirements taking into account additional foreign exchange reserves required to support a growing level of imports, thus becomes the principal tool for considering the question whether foreign exchange is or is not likely to become a development constraint. 3.205 The methodology used does not permit a separate presentation of the balance of payments on current account since all factor service payments have been grouped together in an overall picture of net resource transfers. The resource gap, however, is shown separately /1 as the difference between merchandise exports and merchandise imports including net non factor service payments. Results of Projections 3.206 Detailed projections of exports, imports and net resource transfers resulting from both grants and old and new loan commitments, together with the assumptions underlying these projections, are contained in the Quantitative Projections Appendix, Tables 3.1 through 4.4. Table21 below summarizes the projections. Under the projected export and concessionary aid scenario, Indonesia could afford to increase the level of external commercial borrowing by approximately 12% p.a. in nominal terms if the debt service ratio is to remain below 20%. The projected ratio differs a little from year to year but would not rise above 20% at any point during the projection period (1978/79-1990/91). 3.207 The permissible level of new commercial borrowing consistent with prudent external debt management defined in these terms would rise from $750 million in 1978 to about $2.0 billion in 1986 and to about $3.0 billion in 1990. The amount of total external debt outstanding and disbursed (includ- ing concessionary loans) under this scenario would rise from $11.4 billion at the end of 1977 to $38.0 billion at the end of 1990. The ratio of total external debt outstanding and disbursed to export earnings would however remain constant at around 1.5 between 1977 and 1990. 3.208 Under the assumptions discussed so far, foreign exchange problems would not arise during the projection period. Through 1990, Indonesia would enjoy overall balance of payments surpluses averaging about $600 million p.a.. Up to 1985/86, the foreign exchange reserve coverage would increase steadily from the equivalent of about 4 months imports at present to more than 5 months. The coverage would decline slightly beyond 1985/86 but still amount to a comfortable 4.5 months of imports by 1990/91. 3.209 Because of the weight of oil and LNG in total exports, the results of the foregoing projections are extremely sensitive to a shortfall in oil and LNG earnings. If, for any reason, the net value of oil and LNG exports would be 10% lower than shown in Table 21, under otherwise identical non-oil /1 Quantitative Projections Appendix, Table 3.6. - 154 - export, import and borrowing projections, the debt service ratio would still remain below 20% throughout the projection period. The balance of payments would continue to show a small surplus through the end of Repelita III (1983/84), and the foreign exchange reserve coverage would remain at close to 3 months of imports. But from the mid-1980s, foreign exchange problems would arise as a result of such a shortfall. In view of the possibility that oil and LNG earnings may indeed fall short of current expectations, increased capital assistance from IGGI countries and other sources may temporarily be needed but in the longer term, the only satisfactory solution for a shortfall of oil and LNG export earnings would be to improve non-oil export performance. 3.210 Not surprisingly, the signals for policy requirements provided by the foreign exchange availability and requirement projections under the lower oil and LNG export assumption are fully consistent with and reinforce the signals provided by employment, food and public sector savings projections discussed in earlier chapters. They suggest the need for: (i) significant domestic oil price increases to slow down internal demand growth and thus increase the exportable oil surplus; (ii) increased efforts to promote food production (to reduce rice and other food import requirements) and stimulate agricultural exports, in particular high value tree crops such as rubber, oil palm and coconut; and (iii) a concerted effort to promote labor-intensive manufacturing and sustained high levels of manufactures export growth. 3.211 A sensitivity analysis shows that the foreign exchange shortage projected from the mid-1980s under the lower oil and LNG export assumption could be avoided if any of the following conditions are met: (i) non-oil export volume growth beyond 1983/84 of about 1 percent higher than the projected rate of growth; (ii) no increase in the volume of rice imports beyond the 2.5 millions projected for 1983/84; (iii) a decline in the growth rate of domestic oil consumption by about 2% beyond the mid-1980s. It is therefore plausible that various combinations of policy measures could easily prevent foreign exchange from becoming a binding constraint on develop- ment in the case of a shortfall of oil and LNG export revenues. Conclusion 3.212 The expected increase of pressure on resources discussed throughout Part III of this report appears to be within Indonesia's capacity to deal with through domestic policy action. The projections illustrate the significant implications for the balance of payments and, therefore, for overall development prospects of Indonesta, of achieving and sustaining a manufactures export volume growth rate of not less than 20% p.a. The recent devaluation has provided a framework for reaching this target but supporting measures will be required. As these and other policy actions (oil pricing, promotion of food production) may take some time to be formulated and implemented and as Indonesia may be confronted with a decline in the real price of international oil, some additional concessional and semi-concessional capital assistance from foreign donors over and above projected levels may still be required. Table 21: BORROWING PROGRAM, PROJECTED FOREIGN EXCHANGE AVAILABILITY AND REQUIREMENT, 1978/79-1990/91 (US$ Million - Current Prices) 1978 1979 1980 1981 1982 1983 1985 1990 Concessional and semicon- cessional loan commitments 1,650 1,825 1,975 2,150 2,350 2,550 2,925 4,000 Commercial borrowing 750 850 950 1,075 1,200 1,350 1,700 2,900 Total loan commitments 2,400 2,675 2,925 3,225 3,550 3,900 4,625 6,900 Grants 100 100 100 125 125 125 150 200 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1985/86 1990/91 Oil & LNG exports (net) 4,641 4,955 5,098 5,408 6,068 6,581 7,354 8,355 Non-oil exports 3P551 4,042 4P561 5)242 6,060 6,993 92448 18,567 Total exports 8,192 8,997 9,659 10,650 12,128 13,574 16,802 26,922 Net resource transfers 413 547 754 877 921 929 1,124 1,474 Foreign exchange availability 8,605 9,544 10,413 11,537 13,049 14,503 17,926 28,396 Import requirements (including net NFS) 8,075 8,988 9,961 11,113 12,317 13,649 17,202 28,037 Increase in reserves 530 556 452 424 732 854 724 359 Level of reserves 2,730 3,286 3,738 4,162 4,894 5,748 7,376 10,520 Reserve coverage (months of imports) 4.1 4.4 4.5 4.5 -4.8 5.1 5.2 4.5 Debt service ratio 18.1 17.2 17.1 17.5 17.4 17.2 17.1 17.1 Source: Quantitative Projections Appendix, Tables 3.1 through 4.4. - 156 - CHAPTER 9: CONCLUDING THOUGHTS ON GROWTH AND EMPLOYMENT PROSPECTS 3.213 While the devaluation has improved Indonesia's longer term develop- ment prospects, the next 3-5 years are, for various reasons explained in earlier chapters, likely to show somewhat slower growth than the average for the past decade. A 6.5% annual GDP growth rate appears to be at the upper end of the range that can plausibly be projected in light of current trends and recent policy initiatives. 3.214 These projections are, in fact, very close to the targets set by Government for the third Five Year Development Plan (Repelita III, 1979/80- 1983/84). Assuming every effort is made to stimulate agriculture and manu- facturing development within a favorable and secure climate for increased private investment, the medium-term sectoral growth picture might look approximately as follows: Annual Share in Growth Rates Base Year (1977) Agriculture (incl. forestry) 3.5-4.0% 31.3 Mining (including oil and gas) 3.5% 19.4 Manufacturing 13.0-15.0% 9.5 Power, water, construction, transport and communications 12.0% 9.8 Banking, trade and other services 6.0-6.5% 30.0 GDP 6.0-6.5% 100.0 3.215 If the broad quantitative relationships between output growth and employment growth that were observed for the period 1971-76 (see Part II) are projected to continue for the next few years, a 6-6.5% rate of GDP growth would be compatible with a growth of employment (at constant real minimum wages) of around 3%. There are, however, a number of caveats and conditions attached to this assertion. For example, a slight slowdown in agricultural growth would cause a significant slowdown in the rate of overall employment growth. Similarly, a shortfall in growth in the manufactiarrig sector below the fairly ambitious medium-term rates projected could mean the loss of many potential employment opportunities in the sector that should be the dynamic element of the Government's new growth strategy. 3.216 There is, of course, no guarantee that the broad quantitative relations between output growth and employment growth noted in the past will continue indefinitely. Nor is it in Indonesa'!s loa:-term interest to base a development strategy on the expectation or assumption that labor productivity growth in agriculture and in the residual service sectors, as during the 1971-76 period, will be zero or close to zero. In the agricultural sector, past growth has been accompanied by a remarkably high rate of employ- ment growth, that is to say with almost no increases in the productivity of labor. Most of the production gains have resulted from labor-using tech- - 157 - nology - irrigation extension, fertilizer application, spraying with in- secticides, etc. while few technical innovations have actually resulted in severe labor displacement on a national scale. For the future, this need not be the case, and some innovations, particularly the spread of hand tractors, might reverse the past trend. Ultimately, development depends on technological progress and increases in labor productivity. The introduction of new methods of production:, even if initially labor-displacing, should therefore not be artificially stunted, provided the benefits of increased output outweigh the true costs of the new investments. 3.217 For the industrial sector, the main question is how the employment impact of new investment can be improved. New projects - particularly those of the public sector, where Government can have direct control - should be closely scrutinized for their direct and indirect employment impact. To stimulate industrial employment growth, it is essential to assign higher priority to private sector investment. This requires a climate of trust and security which has been somewhat shaken in recent times. The public sector and private sector should work together in harmony and in a spirit of mutual confidence and cooperation. 3.218 Even with no major changes in output-employment relationships, a 6-6.5% p.a. GDP growth rate associated with a 3% growth in employment cannot be expected to provide a panacea to the country's labor surplus problem. At best, further progress in poverty reduction would be slow. To accelerate the improvement of the incomes of the poor, an acceleration of GDP growth in the longer term is highly desirable, as this would permit higher levels of labor productivity growth consistent with an employment growth target of not less than 3% p.a. The devaluation of the rupiah enhances the possibility of accelerated growth, but to take full advantage of the new incentives thus provided to domestic producers, actions to reduce or remove institutional supply constraints are essential. Whereas before the devaluation of the rupiah, a 20% target for the volume growth of manufactures exports was a tempting but perhaps remote contingency, such a rate - and the multiplier benefits that it would spread through the economy - now becomes a feasible target. Therefore, beyond the next few years it is not unreasoiable to look forward to the overall GDP growth rate accelerating to 7-8% p.a. 3.219 In concluding, it should be remembered that one of the most essential factors in ultimately alleviating the poverty of many Indonesians has already been set in motion, namely successful population policies. Within the next decade the lower fertility patterns observed in Java and Bali will be trans- lated into significantly slower growth of the labor force, which will help to ease the crushing employment and poverty problems. But so far, the reduction in fertility has not become conspicuous in the other islands, and it is to be hoped that the extension of the National Family Planning Program into these areas will soon be met with the same degree of success. 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'::: . �'� \ га wеп кдимпготпи :�г:' • vг'� г�iй'. :' '� ё: S Ь Уа Ф гьЕАSг,климпитпи � Э�' еди гимелwд ��� � Q' � мегпииь\ !� +вsоитн кпимnитли 4_��:.7.3.л :a._; .� в. о э FФRfS �} � � � Ч t+гситпы, каимдитпи Т,б ��i Г/Sиnbawafг+'' �тrг�•+ 1 А;'��� .-�---""fi� �asouтн,suuwesi �`^"�,, �� (� I,}� ' , , всейтвАи suEAwesi i., г, о п О с е о п ре� �`• �с�^'�� �� ^�:7�'е::`�`т � � маЕ � .- msourн-EASтsuEAwesr vоюг �ОмйЬх4,'•г _!5 ��, - о ioo sco зоо аоо soo �а� �о• Т+мдиiикиииw[5i � �aingapu ' � M1tE5 о ,оо поо зоо аоо soa ьоо �qo еоо N wEST NUSA TEиGGAPA SUmc � � . - J !Ь[nsтЧ ATExoGARA �/,� K,IOMEiERS ,ыдд /м'лгуО^.��•и 0.Ьiл,ди +дvА �' 1оо' 1о5' 110° 115° 11о' 1]5° 13о' 135• п•",�"r„мюw.,., 1Ео' - 158 - STATISTICAL ANNEX Table No. Table Headings Population and Employment 1.1 Population 1930, 1961, 1971, 1976: Average Annual Growth Rates 1930-76 and Population Density, By Region and Province 1.2 Population Indicators 1.3 Distribution of Populaton by Age Group and Sex 1.4 Distribution of Population by Consumption Expenditure, 1976 1.5 Population, Labor Force and Employment, 1961, 1971, 1976 1.6 Labor Force Participation Rates, 1961-76 1.7 Employment by Industry, 1961-76 National Income Accounts 2.1 Gross Domestic Product by Industrial Origin at Current Market Prices 2.2 Percentage Distribution of GDP at Current Market Prices, 1971-77 2.3 Gross Domestic Product by Industrial Origin at Constant 1976 Market Prices 2.4 Percentage Distribution of GDP at Constant 1976 Market Prices, 1968-77 2.5 Expenditures on GDP at Current Market Prices, 1971-77 2.6 Expenditures on GDP at Constant 1976 Market Prices, 1968-77 2.7 Average Growth Rates, 1968-77 2.8 Estimates of the Terms of Trade Effect International Trade and Balance of Payments 3.1 Balance of Payments, 1971/72-1977/78 3.2 Nonoil Exports, 1971/72-1977/78 3.3 Export Values by Country of Destination 3.4 Import Values by Country of Origin External Debt 4.1 External Public Debt Outstanding Including Undisbursed as of December 31, 1977 4.2 External Public Debt as of December 31, 1977 by Type of Creditor 4.3 External Public Debt as of December 31, 1977 by Major Currencies and Countries Public Finance 5.1 Central Government Budget Summary, 1972-73-1978/79 5.2 Central Government Receipts, 1972/73-1978/79 5.3 Central Government Expenditures, 1972/73-1978/79 5.4 Development Expenditures, 1972/73-1978/79 5.5 Development Expenditures by Sector 5.6 Project Aid by Sector, 1974/75-1978/79 - 159 - Monetary Statistics 6.1 Money Supply 6.2 Changes in Factors Affecting Money Supply 6.3 Consolidated Balance Sheet of Monetary System, 1973-77 6.4 Banking System Credits by Economic Sectors 6.5 Banking System Credits by Type of Bank (Rp billion) 6.6 Small-Scale Investment Credits and Permanent Working Capital Credits 6.7 Medium-Term Investment Credits by Economic Sectors 6.8 Time Deposits with State Banks Agricultural Statistics 7.1 Principal Agriculture Products by Subsectors, 1969-77 7.2 Agricultural Production of Major Crops by Type of Product 7.3 Rice, Area Harvested, Production and Yield 1968-77 7.4 Rice Production, Imports, Procurement and Consumption, 1960-77 7.5 Area Covered under Rice Intensification Programs, 1967-77 7.6 Volume and Value of Log Exports by Species, 1968-76 7.7 Volume and Value of Log Exports by Destination, 1969-76 7.8 Fisheries Production by Subsector, 1960-76 7.9 Volume and Value of Fish Exports and Imports, 1960-76 7.10 Export Volume of Fish by Type (tons) 1968-76 7.11 Export Value of Fish by Type (US$) 1968-76 7.12 Output, Trade and Domestic Consumption Data for Cassava, 1968-76 7.13 Output, Trade and Domestic Consumption Data for Maize, 1968-77 7.14 Trade and Domestic Consumption Data for Wheat and Wheat Flour, 1968-77 7.15 Aggregate Output, Trade, and Domestic Consumption Data for Vegetables and Sweet Potatoes, 1968-76 7.16 Per Capita Consumption of Selected Food Items, 1968-75 Other Sectors 8.1 Production of Selected Industrial Goods 1969/70-1977/78 8.2 Production, Imports and Estimated Consumption of Cement 8.3 Estimated Cement Production and Capacity through 1980 8.4 Forest Based Industries in Indonesia 8.5 Crude Oil Production, 1973-78 8.6 Petroleum Products - Supply and Demand, 1969-76 8.7 Domestlc Sales of Petroleum Products, 1971-76 8.8 Imports and Consumption of Petroleum Products, 1971-76 8.9 Kerosene Consumption, 1970 and 1976 8.10 Public Highway Network 1977 8.11 Railway Traffic Data, 1971-77 8.12 Motor Vehicle Registration, 1967-76 - 160 - Prices 9.1 Cost of Living Index in Jakarta 9.2 Price Index of Nine Essential Commodities in Selected Cities 9.3 Wholesale Price Indices in Indonesia 9.4 Annual Retail Prices of Six Basic Food Crops, 1952-76 9.5 Price of Rice in Selected Cities 9.6 Domestic Price of Petroleum Products, 1972-78 Investment 10.1 Approved Foreign Investment by Sector, 1967-77 10.2 Approved Domestic Investment by Sector, 1967-77 N.B. The Statistical Annex is followed by a Quantitative Projections Appendix. INDONESIA Population 1930, 1961, 1971, 1976: Average Annual Growth Rates, 1930-76 and Population Density, by Region and Province ('00) Census Census /a Census /a Survey /b Growth Rate (%) Density (Persons/ sq km) Region 1930 1961 1971 1976 1930/61 1961/71 1971/76 1971 1976 Java 6299 76 103 82, 1.3 1.9 1.7 576 621 D.C.I. Jakarta 811 2,907 4,576 5,367 4.2 4.6 3.8 7,756 9,097 West Java 10,586 17,615 21,633 23,454 1.7 2.1 1.8 467 507 Central Java 13,706 18,407 21,877 23,558 1.0 1.7 1.7 640 689 D.I. Jogjakarta 1,559 2,241 2,490 2,625 1.2 1.1 1.2 786 828 East Java 15,056 21,823 25,527 27,103 1.2 1.6 1.4 533 566 Sumatra 815,743 20 813 23, 2.1 2.8 2.8 44 50 Lampung 361 1,668 2,7/ 3,439 5.1 5.2 4.9 83 13 Bengkulu 323 406 519 567 0.7 2.5 2.0 25 27 South Sumatra 1,378 2,773 3,444 3,871 2.3 2.2 2.7 33 37 Riau 493 1,235 1,642 1,843 3.0 2.9 2.6 17 19 Jambi 245 744 1,006 1,103 3.6 3.1 2.1 22 25 West Sumatra 1,910 2,319 2,793 2,994 0.6 1.9 1.6 56 60 North Sumatra 2,541 4,969 6,623 7,467 2.2 2.9 2.7 94 105 Aceh 1,003 1,629 2,009 2,226 1.6 2.1 2.3 36 40 1 Kalimantan 212 2.1 2.3 3.0 10 11 West Kalimantan 802 1,581 2,020 2,281 2.2 2.5 2.7 14 16 H Central Kalimantan 203 497 700 812 2.9 3.5 3.3 5 5 I South Kalimantan 836 1,473 1,699 1,846 1.8 1.4 1.9 45 49 East Kalimantan 329 551 734 927 1.7 2.9 5.4 4 5 Sulawesi 8 93 1.9 i.9 2.1 45 50 Central Sulawesi 390 652 914 1,014 1.7 3.4 2.4 13 15 North Sulawesi 748 1,351 1,718 1,899 1.9 2.4 2.3 90 100 South Sulawesi 2,657 4,517 5,189 5,681 1.7 1.4 2.1 71 78 Southeast Sulawesi 436 559 714 785 0.8 2.5 2.1 26 28 Ball 1,101 1,783 2,120 2,293 1.6 1.8 1.8 381 412 West Nusa Tenggara 1,016 1,808 2,202 2,401 1.9 2.0 1.9 109 119 East Nusa Tenggara 1,343 1,967 2,295 2,462 1.2 1.6 1.6 48 51 Maluku 579 790 1,089 1,258/c 1.0 3.3 3.3 15 17 Irian Jaya 179 758 923 1,008 4.8 2.0 2.0 2 2 Total Indonesia 397, I 130284/c 1.5 2.1 2.0 63 68 n.a. - not available / Includes adjustment for the exclusion of Rural-Irian Jaya. /b Includes adjustment for the exclusion of Rural Irian Jaya, Maluku and East Nusa Tenggara. t /c In an earlier draft. an error was ade in estimating the 1976 population of Maluku. The earlier estimate was 1,215 and the total population 130,241. Population and projection figures in the remaining sections of this report do not incorporate thi s minor error. Sources: Population Census Reports, 1961 and 19/1, Ii.tercensal PopulIadtio Survey, 1976; and Statistical Year book, 1975. - 162 - ANNEX Table 1.2 INDONESIA Population Indicators 1961 1971 1976 Total population 97,019/a 119,232/a 131,331/b Urban (%) 14.8 17.5 17.9 Rural (%) 85.2 82.5 82.1 Annual growth rate .. 2.1/c 2.0/d Crude birth rate (per '000) .. 42 40 Crude death rate (per '000) 27.6 21.0 20.0 Total fertility rate .. 5.5 5.2 Life expectancy at birth Males 34.9 43.0 44.0 Females 42.5 47.5 47.5 Number of acceptors ('000) .. 519 1,973 Age distribution (%) 0 - 14 42.1 44.0 42.0 15 - 64 55.4 53.4 55.0 65+ 2.5 2.6 3.0 Age dependency ratio 0.81 0.87 0.82 Median age 19.9 16.9 18.7 Primary school enrollment ratio (7-12 year) (%) .. 75 81 Secondary school enrollment ratio (13-18 years) (%) .. 15 18 = Not available. /a Census. /b Intercensal survey. /c 1961-71. /d 1971-76. ANNEX - 163 - Table 1.3 INDONESIA Distribution of Population by Age Group and Sex ('000) 1961 1971 1976 Age Group Males Females Total Males Females Total Males Females Total 0-4 8,524 8,644 17,168 9,716 9,571 19,287 9,939 9,618 19,557 5-9 7,741 7,696 15,437 9,641 9,357 18,998 9,621 9,287 18,908 10-14 4,345 3,888 8,237 7,374 6,946 14,320 8,371 8,007 16,378 15-19 3,861 3,901 7,762 5,678 5,784 11,462 6,801 7,157 13,958 20-24 3,476 4,369 7,845 3,577 4,433 8,010 4,918 5,272 10,189 25-34 7,386 8,604 15,991 7,747 9,300 16,047 7,741 8,753 16,493 35-44 5,762 5,403 11,164 7,069 7,134 14,203 7,268 7,632 14,900 45-54 3,586 3,509 7,095 4,315 4,223 8,538 5,123 5,068 10,191 55-64 1,912 1,864 3,776 2,122 2,265 4,387 3,866 3,007 5,873 65+ 1,182 1,245 2,427 1,415 1,557 2,971 1,729 2,019 3,749 Unknown 60 57 118 4 4 8 29 15 44 Total 47,838 49,181 97,019 58,658 60,575 119,233 64,406 65,835 130,341 --- ----------- -- Percentage distribution - ---------- -- 0-4 17.8 17.6 17.7 16.6 15.8 16.2 15.4 14.6 15.0 5-9 16.2 15.6 15.9 16.4 15.4 15.9 14.9 14.1 14.5 10-14 9.1 7.9 8.5 12.6 11.5 12.0 13.0 12.2 12.6 15-19 8.1 7.9 8.0 9.7 9.5 9.6 10.6 10.9 10.7 20-24 7.3 8.9 8.1 6.1 7.3 6.7 7.6 8.0 7.8 25-34 15.4 17.5 16.5 13.2 15.4 14.3 12.0 13.3 12.7 35-44 12.0 11.0 11.5 12.1 11.8 11.9 11.3 11.6 11.4 45-54 7.5 7.1 7.3 7.4 7.0 7.2 8.0 7.7 7.8 55-64 4.0 3.8 3.9 3.6 3.7 3.7 4.4 4.6 4.5 65+ 2.5 2.5 2.5 2.4 2.6 2.5 2.7 3.1 2.9 Unknown 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Employment and Income Distribution in Indonesia, Appendix Tables A-1, A-2 and A-3. ANNEX - 164 - Table 1.4 INDONESIA Distribution of Population by Consumption Expenditure, 1976 (%) Monthly per capita consumption expendi- Indonesia Java Outer islands /a ture (Rp) Urban Rural Urban Rural Urban Rural Up to 1,000 0.39 1.14 0.52 1.01 0.11 1.39 1,000- 1,999 4.09 16.10 4.49 20.16 3.42 8.76 2,000- 2,999 10.92 26.90 12.46 31.88 8.15 18.24 3,000- 3,999 16.27 20.60 17.01 20.31 14.98 21.42 4,000- 4,999 14.95 3.36 14.39 10.98 15.99 15.93 5,000- 5,999 12.13 7.94 10.98 6.76 14.18 9.99 6,000- 7,999 14.99 7.99 13.56 5.16 17.52 12.81 8,000- 9,999 9.56 3.39 9.10 1.99 10.45 5.75 10,000-14,999 9.88 2.56 9.77 1.25 9.92 4.75 15,000-19,999 3.42 0.43 3.67 0.26 3.02 0.65 20,000-29,999 2.30 0.22 2.72 0.19 1.56 0.26 30,000 or more 1.10 0.06 1.33 0.06 0.68 0.06 Total 100.00 100.00 100.00 100.00 100.00 100.00 /a Excluding Maluka and Irian Jaya. Source: Survey Social Ekonomi Nasional (January-April 1976), BPS. - 165 - ANNEX Table 1.5 INDONESIA Population, Labor Force and Employment. 1961 1971, 1976 ('000) September 1961 September 1971 March 1976 October 1976 Males Females Total Males Females Total Males Females Total Males Females Total Java Urban Total population 4,863 4,944 9,807 6,764 6,964 13,728 7,343 7,549 14,892 7,424 7,631 15,055 Population aged 109 3,399 3,503 6,902 4,749 5,031 9,780 5,284 5,560 10,844 5,342 5,621 10,963 Population aged 15+ 2,941 3,055 5,996 3,921 4,194 8,115 ... ... ...... ... Employment 2,251 847 3,098 2,781 1,202 3,983 3,220 1,455 4.675 3,115 1,440 4,555 Unemployment 174 107 282 153 51 204 ... ... 277 223 62 285 Labor force 2,425 955 3,380 2.934 1,253 4,187 ... ... 4,952 3,338 i.502 4,840 Rural Total population 25,938 27,248 53,186 30,407 31,967 62,375 33,038 34,172 67,211 33,371 34,515 67,886 Population aged 10+ 17,093 18,270 35,363 20,418 22,116 42,534 23,242 24,587 47,829 23,475 24,834 48.309 Population aged 15+ 14,820 16,314 31,134 16,582 18,540 35,122 ... ... ... ... ... Employment 13,324 5,033 18,358 14,229 7,546 21,775 18,531 13,096 31,627 17.975 10,023 27,998 Unemployment 652 337 989 278 122 400 ... ... 368 285 96 381 Labor force 13,976 5,371 19,347 14,507 7,668 22,175 ... ... 31,996 18,260 10,119 28,379 Total Total population 30,801 32,192 62,993 37,172 38,931 76,102 40,381 41,722 82,103 40,793 42,148 32,941 Population aged 10+ 20,491 21,773 42,264 25,167 27,147 52,314 28,526 30,147 58,673 28,817 30,455 59,272 Population aged 15+ 17,761 19,370 37,130 20,503 22,734 43,237 ... ... ... Employment 15,575 5,881 21,456 17,010 8,747 25,757 21,751 14,551 36,302 21,090 11,462 32.552 Unemployment 826 445 1,271 1 431 174 605 393 253 646 508 159 667 Labor force 16,401 6,325 22,727 17,441 8,921 26,362 22,144 14,804 36,949 21,598 11,621 33,219 Other Islands Urban ,otal population 2,320 2,232 4,551 3.619 3,418 7,037 4,247 4,190 8,438 4,353 4,293 8,646 Population aged 10+ 1,572 1,507 3,079 2,497 2,341 4,837 2,976 2,978 5,954 3,049 3,052 6,101 Population aged 15+ 1,330 1,271 2,601 2,034 1,899 3,933 ... ... ... ... Employment 997 203 1,200 1,436 378 1,813 1,874 669 2,543 L,822 623 Z,4'5 Unemployment 86 34 119 67 24 91 ... ... 147 141 48 189 Labor force 1,084 236 1,319 1,502 402 1,904 ... ... 2,690 1,963 671 2,631, Rural Total population 14,718 14.756 29,474 17,868 18,225 36,093 19,778 19,923 39,700 20,031 20,179 40.210 Population aged 10+ 9,508 9,561 19,070 11,637 12,159 23,796 13,345 13,804 27.149 13,517 13,981 27,498 Population aged 15+ 8,133 8,313 16,446 9,389 10,068 19,457 ... ... ... Employment 7,409 2,887 10,295 7,912 3,991 11,903 10,288 6,176 16,464 9,727 5,117 14,844 Unemployment 299 193 432 154 46 200 ... ... 280 249 67 316 Labor force 7,708 3,079 10,787 8,066 4,037 12,103 ... ... 16,743 9,976 5,184 15,160 Total Total population 17,038 16,988 34,026 21,486 21.644 43,130 24,025 24,113 48,138 24,384 24,472 48,856 Population aged 10+ 11,082 11,068 22,150 14,133 14,500 28,633 16,320 16,783 33.103 16,566 17,033 33,599 Population aged 15+ 9,463 9,583 19,047 11,423 11,967 23,390 ... ... ... ... Employment 8,406 3,089 11,495 9,348 4,370 13,717 12,162 6,845 19,007 11,549 5,740 17,289 Unemployment 385 226 611 221 69 290 255 171 426 390 116 506 Labor force 3,792 3,316 12,107 9,568 4,439 14,007 12,417 7,016 19,432 11,939 5.856 17,795 Urban pouaontdnel. Total population 7,183 7,176 14,358 10,383 10,382 20,765 11,590 11,730 23,330 11,777 11,925 23,702 Population aged 10+ 4,971 5,010 9,981 7,246 7,372 14,617 8,260 8,538 16.798 8,392 8,672 17,064 Population aged 15+ 4,271 4,326 8,597 5,955 6,093 12,048 6,774 7,033 13,806 .. ... ... Employment 3,248 1,050 4,298 4,217 1,580 5,796 5,093 2,125 7,218 4,937 2,063 7,000 Unemployment 260 141 401 220 75 295 290 134 424 364 111 475 Labor force 3,509 1,191 4,699 4,436 1,655 6,091 5,383 2,258 7,642 5,301 2,174 7,475 &ural Total population 40,656 42,004 82,660 48,275 50,192 98,468 52,816 54,095 106,911 53,401 54,694 108,095 Population aged 10+ 26,601 27,831 54,433 32,055 34,275 66,330 36,587 38,391 74,978 36,992 38,815 75,807 Population aged 15+ 22,953 24,627 47,580 25,971 28,608 54,579 29,701 31,890 61,592 ... Employment 20,733 7,920 28,653 22,141 11,337 33,678 28,819 19,272 48,091 27,702 15,140 42,842 Unemployment 951 530 1,481 432 168 600 359 289 648 533 164 697 labor force 21,684 8,450 30,134 22,573 11,705 34,278 29,178 19,561 48,739 28,235 15,304 43,539 Total Total population 47,839 49,180 97,019 58,658 60,575 119,232 64,406 65,835 130,241 65,178 66,619 131,797 Population aged 10+ 31,573 32,841 64,414 39,300 41,647 80,947 44,846 46,930 91,776 45,383 47,487 92,870 Population aged 15+ 27,224 28,953 56,177 31,926 34,701 56,627 36,475 38,923 75,398 ... ... Employment 23,981 8,970 32,951 26,358 13,117 39,474 33,912 21,397 55,309 32,639 17,203 49,842 Unemployment 1,211 671 1,882 652 243 895 649 423 1,072 898 274 1,172 Labor force 25,193 9,641 34,834 27,009 13,360 40,369 34,561 21,320 56,381 33.537 17,477 51,014 ... 4oc available. Source: Employment and Income distribution in Indonesia, Appendix Table A-4 ana A-5. ANNEX - 166 -ANE Table 1.6 INDONESIA Labor Force Participation Rates, 1961-76 (%) Age Group September September March October 1961 1971 1976 1976 Males 10-14 22.7 18.3 26.1 16.7 15-19 66.7 49.0 66.5 58.8 20-24 87.2 76.5 88.3 87.1 25-44 95.5 92.3 98.2 98.6 45-54 95.6 90.1 97.0 95.4 55-64 89.6 81.1 90.3 85.3 65 and over 72.8 60.6 69.6 60.9 Total /a 79.8 68.7 77.1 73.8 Females 10-14 15.6 14.4 20.9 10.9 15-19 30.6 28.7 45.4 34.2 20-24 27.4 31.9 48.5 37.5 25-44 29.6 38.2 55.2 45.6 45-54 39.8 43.3 61.7 50.5 55-64 39.1 36.3 51.2 40.3 65 and over 27.8 22.8 31.0 20.o Total /a 29.4 32.1 46.5 36.8 Both Sexes 10-14 19.3 16.4 23.6 13.9 15-19 48.6 38.7 55.7 46.6 20-24 53.9 51.8 67.7 60.1 25-44 61.5 63.9 75.8 70.4 45-54 68.0 67.0 79.4 74.0 55.64 64.7 58.0 70.3 62.7 65 and over 49.7 40.8 48.8 39.4 Total /a 54.1 49.9 61.4 54.9 /a Totals include unknowns. Source: Employment and Income Distribution in Indonesia, Appendix Tables A-6 and A-8. ANNEX - 1E7 - Table 1.7 INDONESIA Employment by Industry 1961-76 ('000) September 1961 September 1971 March 1976 October Industry Males Females Total Males Females Total Males Females Total 1976 Agriculture 17,517 6,196 23,713 17,006 7,958 24,963 22,192 14,452 36,644 30,814 Mining & quarrying 77 11 88 85 6 91 41 4 45 120 Manufacturing 1,164 702 1,866 1,524 1,426 2,950 1,940 1,736 3,676 4,179 Electricity, gas & water 48 3 51 36 2 38 33 2 35 28 Construction 563 22 585 731 10 741 1,092 32 1,124 849 Finance } 79 16 95 64 10 75 97 Trade 1,158 688 2,205 2,342 1,793 4 134 3,329 3,100 6,429 7,156 Transportation 669 25 694 902 18 419 1,115 8 1,134 1,337 Other 376 264 640 778 825 1,604 494 386 879 - Total 23,9 3 2 5 1 33,913 21,397 5 -- - - - - ----- --- Percentage distribution --------- Agriculture 73.0 69.1 72.0 .64.5 60.7 63.2 65.4 67.5 66.3 61.8 Mining & quarrying 0.3 0.1 .0.3 0.3 - 0.2 0.1 - 0.1 0.2 Manufacturing 4.9 7.8 5.7 5.8 10.9 7.5 5.7 8.1 6.7 8.4 Electricity, gas & water 0.2 - 0.2 0.1 - 0.1 0.1 - - 0.1 Construction 2.4 0.3 1.8 2.8 0.1 2.0 3.2 0.1 2.0 1.7 0.3 0.1 0.2 0.2 - 0.1 0.2 Finance } 6.3 7.7 6.7 Trade8.9 13.7 10.5 9.8 14.5 11.6 14.4 Trade} Transportation 2.8 0.3 2.1 3.4 0.1 2.3 3.3 - 2.1 2.7 Other services 8.5 11.8 9.4 10.9 8.1 10.0 10.7 7.8 9.5 10.6 Other 1.6 2.9 1.9 3.0 6.3 4.1 1.5 2.0 1.6 - Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Employment and Income Distribution in Indonesia, Appendix Tables A-10, A-11, A-13 and A- 14. INDONESIA Cross Domestic -Product by dus"lal Grigla-at Curreat -1arket Prices (Rp billion) 1967 1968 1969 1970 1974 1972 1973 1974 1975 1976 1977 Agriculture 457 1 .98 2. 34 0 4 5.968 Farm food crops 301 726 823 962 961 1,071 1,573 2,096 2,555 3,044 Farm nonfood crops 46 133 199 214 ) 226 323 386 358 481 EStaLe crops 19 47 -69 83 685 ) 118 152 191 184 213 Livestock products 33 53 89 103 ) 135 173 223 303 358 Forestry 6 35 59 102 ) 173 355 423 413 513 Fishery 54 75 101 112 ) 114 134 179 191 215 Mining & quarrying 23 87 129 173 294 491 831 2,374 2,485 2,930 3,694 Manufacturing 62 179 251 312 307 448 650 890 1,124 1,418 1,810 Electricity, gas & water 3 9 13 15 18 20 30 52 70 98 122 Construction 14 45 75 100 128 174 262 406 590 813 912 Commerce, hotels, etc. 149 356 476 619 .. /a 769 1,118 1,775 2,104 2,554 .. /a Transport & commuication 19 57 77 96 162 182 257 442 521 663 827 ) Banking, etc. 4 12 22 33 ) 53 83 113 151 207 ) Ownership of dwelling 17 41 53 66 1,117 ) 103 143 194 258 368 5,714 ) Public administration & defense 41 116 136 183 ) 290 405 645 864 1,074 ) Other services 59 125 147 169 ) 197 264 380 473 547 ) Cross Domestic Product 848 2 2, 330 3 4 1 1 1 1 /a Included with services. Note: Totals do not add due to rounding. Source: BPS. - 169 - ANNEX Table 2.2 INDONESIA Percentage Distribution of GDP at Current Market Prices, 1971-77 (%) 1971 1972 1973 1974 1975 1976 1977 Economic Sectors Agriculture, Forestry, Fishery 44.8 40.3 40.1 32.5 31.7 31.1 31.3 Mining 8.0 - 10.8 12.3 22.0 19.6 18.9 19.4 Manufacturing 8.4 9.8 9.6 8.3 8.9 9.2 9.5 Electricity, gas & water 0.5 0.4 0.5 0.5 0.6 0.6 0.6 Construction 3.5 3.8 3.9 3.8 4.7 5.2 4.8 Transport & communication 4.4 4.0 3.8 4.1 4.1 4.3 4.4 Other services 30.4 30.9 29.8 28.8 30.4 30.7 30.0 Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Expenditure Categories Private consumption 77.1 74.5 70.9 65.9 69.2 67.7 67.4 Government consumption 9.3 9.1 10.6 10.6 9.9 10.3 10.9 Gross domestic investment 15.8 18.8 17.9 16.7 20.3 20.7 18.9 Exports, net -2.2 -2.4 0.6 7.6 0.6 1.3 2.8 Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 INDONESIA Gross Domestic Product by Industrial Origin at Constant 1976 Market Prices (Rp billion) 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Agriculture 38 3571 3757 3.986 4.036 4 4.60 4.59 4 Farm food crops 1,952 2,254 2,264 2,337 2,490 ) 2,454 2,728 2,915 2,941 3,044 Farm nonfood crops 453 467 469 477 ) 487 478 455 462 481 Estate crops 141 142 159 168 1,496 ) 181 172 197 208 213 Livestock products 246 221 231 243 ) 270 277 297 324 358 Forestry 173 230 271 349 ) 457 588 538 453 513 Fishery 173 170 179 184 ) 187 193 199 207 215 Mining & quarrying 849 1,159 1,408 1,637 1,696 2,074 2,557 2,643 2,548 2,930 3,287 0 Manufacturing 545 593 678 743 766 882 1,016 1,180 1,325 1,419 1,627 Electricity, gas & water 35 37 41 48 53 56 64 78 87 98 111 Construction 154 194 255 320 361 469 554 676 771 813 855 Commerce, hotels, etc. 1,111 1,236 1,393 1,572 .. /a 1,942 2,112 2,312 2,444 2,554 .. /a Transport & communication 276 282 292 308 405 443 497 557 585 663 750 Banking, etc. 37 43 70 92 ) 132 146 155 179 207 ) Ownership of dwelling 125 138 148 159 3,138 ) 185 218 265 301 368 5,018 Public administration & defense 534 636 651 668 ) 709 731 749 1,018 1,074 Other services 436 445 456 468 ) 492 508 519 533 547 ) Cross Domestic Product 7,240 8,246 8,6 9,7 1,0 11,419 1283 1373 14,38 15,49 1662 /a Included with services. Note: Totals do not add due to rounding. Source: BPS. INDONESIA Percentage Distribution of GDP at Constant 1976 Market Prices, 1968-77 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Economic Sectors Agriculture, forestry, fishery 42.3 39.8 38.5 38.3 35.3 34.5 33.5 32.0 31.1 29.9 Mining 14.1 15.7 16.8 16.3 18.2 19.9 19.2 17.7 18.9 19.7 Manufacturing 7.2 7.6 7.6 7.4 7.7 7.9 8.6 9.2 9.2 9.8 Electricity, gas & water 0.4 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.7 Construction 2.4 2.8 3.3 3.5 4.1 4.3 4.9 5.4 5.2 5.1 Transport & communication 3.4 3.3 3.2 3.9 3.9 3.9 4.1 4.1 4.3 4.5 Other services 30.2 30.3 30.1 30.1 30.3 29.0 29.1 31.0 30.7 30.3 Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 l Expenditure Categories Private consumption 73.9 72.9 68.9 66.7 65.0 64.4 66.3 68.2 67.7 65.3 Government consumption 8.9 8.4 9.0 9.1 8.1 9.9 10.0 10.3 10.3 11.1 Gross domestic investment 9.4 11.0 13.3 15.3 16.6 17.2 19.2 21.0 20.7 20.3 Exports, net 7.8 7.7 8.8 8.9 10.3 8.5 4.5 0.5 1.3 3.3 Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 '-I - 172 - ANNEX Table 2.5 INDONESIA Expenditures on GDP at Current Market Prices, 1971-77 (Rp billion) 1971 1972 1973 1974 1975 1976 1977 Private consumption /a 2,833 3,402 4,791 7,013 8,744 10,491 12,845 Government consumption 341 414 716 1,147 1,254 1,591 2,069 Gross domestic investment 580 857 1,208 1,797 2,572 3,205 3,597 Export of goods & nonfactor services 529 754 1,354 3,105 2,851 3,430 4,119 Less import of goods and nonfactor services 611 863 1,316 2,294 2,778 3,222 3,583 Gross Domestic Product 3,672 4,564 6,753 10,768 12,643 15,494 19,047 Net factor income abroad -67 -159 -245 -507 -556 -432 -627 GNP 3,605 4,405 6,508 10,261 12,087 15,062 18,420 GDS 498 748 1,246 2,608 2,645 3,412 4,133 GNS 431 589 739 2,101 2,089 2,980 3,506 GDI/GDP 15.8 18.8 17.9 16.7 20.3 20.7 18.9 GDS/GDP 13.6 16.4 18.5 24.2 20.9 22.0 21.7 GNS/GNP 12.0 13.4 16.4 20.5 17.3 19.8 19.0 /a Residual. Note: Totals do not add due to rounding. Source: BPS. INDONESIA Expenditures on GDP at Constant 1976 Market Prices, 1968-77 (Rp billion) 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Private consumption /a 6,090 6,537 6,728 6,935 7,427 8,273 9,108 9,813 10,491 10,860 Government consumption 733 751 876 947 930 1,270 1,375 1,482 1,591 1,845 Gross domestic investment 775 983 1,305 1,588 1,891 2,213 2,638 3,023 3,205 3,368 Export of goods and nonfactor services 1,459 1,674 1,961 2,144 2,703 3,258 3,377 3,048 3,430 3,801 Less import of goods and nonfactor services 811 982 1,100 1,209 1,531 2,177 2,762 2,980 3,222 3,252 Gross Domestic Product 8,246 8)963 9,771 10)405 11,419 12,837 13)736 14,387 159494 16,622 Terms of trade effect -893 -1,076 -1,069 -1,096 -1,364 -1,016 364 11 0 -63 GDY 7,353 7,887 8,702 9,309 10,055 11,821 14,100 14,398 15,494 16,559 GNP 8,174 8,878 9,667 10,311 11,136 12,431 13,125 13,791 15,062 16,163 GNY 7,281 7,802 8,598 9,215 9,772 11,415 13,489 13,802 15,062 16,100 GDS 530 600 1,097 1,427 1,698 2,278 3,617 3,102 3,412 3,854 GNS 458 515 993 1,333 1,415 1,871 3,006 2,506 2,980 3,395 GDI - GDP (%) 9.4 11.0 13.4 15.3 17.6 17.2 19.2 21.0 20.7 20.3 GDS GDY (%) 7.2 8.6 13.6 15.3 17.9 19.3 25.6 22.5 22.0 23.3 GNS - GNY (%) 6.3 6.6 11.5 14.5 14.5 16.4 22.3 18.2 19.8 21.1 /a Residual. Note: Totals do not add due to rounding. Source: BPS. - 174 - ANNEX Table 2.7 INDONESIA Average Growth Rates, 1968-77 Actual /a Actual /a Actual /a 1968-73 1973-77 1968-77 Agriculture 5.0 2.9 4.0 Mining 17.2 6.5 12.3 Manufacturing 11.4 12.5 11.9 Other sectors 9.9 8.7 9.4 GDP 9.3 6.7 8.1 Private consumption 6.3 7.0 6.6 Government consumption 11.6 9.8 10.8 GDI 23.3 11.1 17.7 Exports 17.4 3.9 11.2 Imports 21.8 10.6 16.7 GDY 10.0 8.8 9.4 Factor payments 41.3 3.1 22.9 GNP 8.7 6.8 7.9 GNY 9.4 9.0 9.2 GDS 33.9 14.0 24.7 GNS 32.5 16.1 24.9 /a Compound average. INDONESIA Estimates of the Terms of Trade Effect (Rp billion) 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Exports in current prices 228 245 429 529 754 1,354 3,105 2,851 3,430 4,119 Exports in 1976 prices 1,459 1,674 1,961 2,144 2,703 3,258 3,377 3,048 3,430 3,801 Exports price index 15.6 14.6 21.9 24.7 27.9 41.6 91.9 93.5 100.0 108.4 Imports in current prices 327 403 529 611 863 1,316 2,294 2,778 3,222 3,583 Imports in 1976 prices 811 982 1,100 1,209 1,531 2,177 2,762 2,980 3,222 3,252 Imports price index 40.3 41.0 48.1 50.5 56.3 60.4 83.0 93.2 100.0 110.2 Exports (Imports capacity) 566 598 892 1,048 1,339 2,242 3,741 3,059 3,430 3,738 Terms of trade effect -893 -1,076 -1,069 -1,096 -1,364 -1,016 364 11 0 -63 Net factor income from abroad in current prices -29 -35 -50 -67 -159 -246 -507 -556 -432 -627 Net factor income from abroad in 1976 prices -72 -85 -104 -94 -283 -407 -611 -596 -432 -459 Net foreign inflows (1976 prices) -317 -469 -312 -255 -475 -342 +368 -517 -224 +27 Net foreign inflows (current prices) -128 -193 -150 -149 -268 -208 +304 -483 -224 -91 N) - 176 - ANNEX Table 3.1 INDONESIA Balance of Payments 1971/72-1977/78 (US$ million) 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 (actual) (actual) (actual) (actual) (actual) (actual) Est. Actual 1. Net Oil /a 204 399 641 2 638 3 138 3 710 4,416 2. Net LNG /a - - - --- - 78 3. Non Oil (net) -669 -956 -1397 -2776 -3.992 4,512 -5,056 a. Exports, fob 784 974 1,905 2,033 1,873 2,863 3,489 b. Imports, c&f -1,155 -1,661 -2,938 -4,341 -5,090 -6,167 -7,144 c. Service (non freignt) - 298 - 269 - 364 - 468 - 775 -1,208 -1,401 4. Current Account (1+2+3) - 465 - 557 - 756 - 138 - 854 - 802 - 562 5. Offficial Transfer & Capital 420 481 643 660 11995 1 823 2E2 a. IGGI 420 481 556 513 945 1,596 1,710 i. Program Aid 306 336 281 180 74 147 173 ii. Project Aid 114 145 275 333 871 1,449 1,537 - ODA (145) (275) (333) (482) (513) (661) - Non ODA ( -) C -) C -) (389) (936) (876) b. Non IGGI - 87 147 1 227 412 c. Cash Loan - - - 1,049 - - 6. Debt Repayment (principal) - 107 - 66 - 81 - 89 - 77 - 166 - 744 7. Miscellaneous Capital 190 480 549 - 131 -1.075 38 21 a. Direct Investment 186 254 331 538 454 287 285 b. Trade Credits 4 11 18 13 14 - 32 - 50 c. Others - 215 200 - 682 -1,543 - 217 - 214 8. Total (4 through 7) 38 338 355 302 - 11 893 813 9. Errors & Omissions. - 13 87 5 - 311 - 353 108 - 186 10. Monetary Movements - 25 - 425 - 360 9 364 1,001 - 651 /s Gross export value minus (i) oil sector imports and other foreign exchange cost of production, refining and marketing of oil; and (ii) factor payments to foreign companies. In the foregoing definition "foreign ex- change cost" are exclusive of service payments on account of Pertamina's debts but include payments resulting from tanker deals. Net LNG is defined similarly. Source: Sank Indonesia. ANNEX - 177 - Table 3.2 INDONESIA Nonoil Exports, 1971/72-1977/78 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1. Timber Value 170 275 720 615 527 885 854 Volume 8,840 12,701 15,704 12,434 11,335 15,770 14,306 Price 19 22 46 49 46 56 60 2. Rubber Value 215 211 483 425 381 577 560 Volume 809 826 902 842 846 892 846 Price 266 255 535 505 450 647 662 3. Palm oil Value 45 42 89 184 142 147 214 Volume 212 245 279 303 417 415 406 Price 212 171 319 607 341 354 527 4. Coffee Value 54 83 79 92 112 330 630 Volume 72 111 96 105 142 143 188 Price 750 748 823 876 789 2,308 3,351 5. Tea Value 31 31 31 50 50 64 131 Volume 46 46 46 51 61 64 60 Price 674 674 674 980 820 1,000 2,183 6. Tobacco Value 20 32 46 36 40 41 82 Volume 19 27 35 26 23 21 41 Price 1,053 1,185 1,314 1,385 1,739 1,952 2,000 7. Pepper Value 21 21 31 22 25 55 85 Volume 24 24 25 14 17 33 39 Price 875 875 1,240 1,571 1,471 1,667 2,179 8. Palm kernel Value 5 4 6 8 4 4 7 Volume 59 51 37 30 41 30 28 Price 85 78 162 267 98 133 236 9. Copra Value 8 6 3 - - - - Volume 67 61 21 - - - - Price 119 98 143 - - - - 10. Copra cake Value 12 14 19 22 29 36 27 Volume 236 303 224 236 363 375 244 Price 51 46 85 93 80 96 112 11. Tapioca Value 14 12 7 30 17 10 14 Volume 434 304 117 455 234 133 185 Price 32 39 60 66 73 75 74 12. Other food stuff Value 28 26 49 47 37 52 53 Volume 640 604 1,047 926 731 834 808 Price 44 43 47 51 51 62 66 13. Animal & product Value 23 42 90 92 105 146 179 Volume 294 101 84 76 70 82 86 Price 78 416 1,071 1,211 1,500 1,780 2,077 14. Tin Value 64 70 98 166 158 181 241 Volume 20 21 22 24 22 21 25 Price 3,200 3,333 4,455 6,917 7,182 8,619 9,640 15. Copper Value - 13 56 102 74 95 84 Volume - 28 126 222 189 230 210 Price - 464 444 459 392 413 400 16. Other mineral Value 18 19 21 28 25 44 45 Volume 2,176 2,432 2,418 2,515 1,869 2,281 2,556 Price 8 8 9 11 13 19 18 17. Miscellaneous Value 56 76 77 114 144 196 283 Volume 184 228 238 202 286 278 770 Price 304 333 324 564 503 705 367 Total Value 784 977 t 20 1,73 2.863 ilLn Volume 14,132 18,113 21,421 18 461 16,730 21,602 20,808 Price 55 54 89 110 112 133 182 Value: In millions of USS Volume: In thousands of cons Price: USS/ton Source: Bank Indonesia. - 178 - ANNEX Table 3.3 INDONESIA Export Values by Country of Destination (%) 1971 1972 1973 1974 1975 1976 1977 Japan 44.6 50.7 53.2 53.5 44.1 41.1 40.2 ASEAN 15.1 8.0 10.6 7.6 10.3 8.9 10.6 Malaysia .. .. .. .. 0.9 0.3 0.2 Philippines 2.1 0.5 - - 0.5 1.0 1.2 Singapore 13.0 7.5 10.6 7.5 8.9 7.5 9.3 Thailand - - - 0.1 - - - Other Asia 5.2 6.4 6.4 4.8 4.3 4.3 5.8 USA 15.6 14.9 14.5 21.3 26.3 28.7 27.8 Other America 0.5 4.2 3.4 6.0 8.3 7.6 5.3 E.E.C. 13.6 11.9 8.8 4.9 5.6 7.2 8.5 France 0.6 0.6 0.5 0.3 0.2 0.4 0.6 West Germany 5.0 3.7 3.7 2.2 1.9 2.4 2.2 Netherlands 5.8 4.4 3.1 1.9 2.5 2.7 3.4 United Kingdom 1.0 1.3 1.0 0.3 0.4 0.5 0.6 Other E.E.C. 1.2 1.9 0.5 0.1 0.6 1.2 1.7 Other Europe 2.3 2.7 2.4 1.3 0.7 1.0 1.0 Australia 2.0 0.8 0.5 0.3 0.3 0.4 0.5 Other oceanic - 0.1 - - - - - Africa 0.1 0.3 0.2 0.2 0.1 0.2 0.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Indikator Ekonomi (BPS) - 179 - ANNEX Table 3.4 INDONESIA Import Values by Country of Origin (%) 1971 1972 1973 1974 1975 1976 1977 Japan 32.8 34.0 29.3 29.4 29.9 26.2 27.1 ASEAN 7.1 8.5 7.7 8.7 8.6 14.0 14.3 Malaysia .. .. .. .. 0.4 0.4 0.3 Philippines .. .. .. .. 0.3 0.3 0.3 Singapore 6.3 6.5 4.9 6.5 7.2 9.7 8.6 Thailand 0.8 2.0 2.8 2.2 0.7 3.6 5.1 Other Asia 12.1 12.6 18.3 17.1 14.3 12.8 16.9 USA 15.8 15.5 18.8 15.9 14.1 17.4 12.4 Other America 0.5 0.7 0.9 1.4 1.8 1.2 2.3 E.E.C. 20.5 17.8 16.6 17.7 18.6 21.2 20.8 France 1.5 1.3 1.7 1.9 1.9 3.5 3.0 West Germany 9.5 7.5 7.2 8.2 7.6 8.6 7.8 Netherlands 4.6 4.3 3.3 2.7 2.8 3.0 4.2 United Kingdom 4.2 4.1 3.8 3.8 3.5 3.1 3.8 Other E.E.C. 0.7 0.6 0.6 1.1 2.8 3.0 2.0 Other Europe 5.3 3.9 3.2 5.4 5.8 2.4 2.2 Australia 2.9 3.3 3.3 3.4 3.3 3.4 3.0 Other oceanic 0.1 0.3 0.2 0.4 0.3 0.4 0.5 Africa 2.9 3.4 1.7 -0.6 2.3 1.0 0.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Indikator--Ekonomi (BPS) - 180 - .1EX Table 4.1 INDONESIA External Public Debt Outstanding Including Undisbursed as of December 31, 1977 /a Debt Repayable in Foreign Currency and Goods (USS million) Type of creditor DE BT 0 UTSTANDING Creditor country Disbursed Undisbursed Total Suppliers Credits Australia 1.1 5.8 6.9 France 8.5 - 8.5 Japan 1,391.4 73.7 1,465.1 Korea, Republic of - 45.7 45.7 Netherlands 28.4 - 28.4 Total Suppliers Credits 1,4294 125.2 Financial Institutions Belgium 120.6 19.5 140.1 France 277.0 202.0 479.0 Germany, Fed. Rep. of 275.1 191.1 466.2 Hong Kong 91.0 2.5 93.5 Italy 6.6 0.3 6.9 Japan 241.1 - 241.1 Netherlands 250.5 86.0 336.5 Norway 62.2 28.9 91.1 Singapore 40.0 2.7 42.7 United Kingdom 117.6 42.1 159.7 United States 1,238.5 118.7 1,357.2 Total Financial Institutions 2,720.2 693.8 3 Nationalization Metherlands 214.1 - 214.1 Total Nationalization 214.1 - 214.1 Multilateral Loans Asian Development Bank 114.9 383.7 498.6 IBRD 402.3 1,012.4 1,414.7 IDA 466.4 106.2 572.6 Total Multilateral Loans 983.6 12502.3 2 Bilateral Loans Abu Dhabi - 14.4 14.4 Austria 0.6 0.1 0.7 Belgium 67.7 - 67.7 Bulgaria 2.1 - 2.1 Canada 142.1 145.7 287.8 Czechoslovakia 69.1 - 69.1 Denmark 12.2 58.7 70.9 Egypt, Arab Rep. of 3.3 - 3.3 France 202.9 113.5 316.4 German Dem. Rep. 56.8 - 56.8 Germany, Fed. Rep. of 582.2 206.4 788.7 Hungary 17.2 - 17.2 India 4.0 6.0 10.0 Iran 104.9 95.1 200.0 Italy 77.8 - 77.8 Japan 1,964.6 204.8 2,869.3 Kuwait - 32.0 32.0 Netherlands 241.5 144.1 385.0 New Zealand 3.1 0.5 3.6 Pakistan 12.1 - 12.1 Poland 97.1 - 97.1 Romania 13.9 - 13.9 Saudi Arabia 28.0 25.0 123.0 Switzerland 1.4 14.2 15.6 United Kingdom 83.3 5.0 88.3 United States 1,664.6 372.4 2,037.0 USSR 770.0 - 770.0 Yugoslavia 120.9 119.0 239.9 Total Bilateral Loans 6,343.4 2 8,669.8 Total External Public Debt 11,691.0 4 /a At June 1978 exchange rates. ANNEX - 181 - Table 4. INDONLSIA External Public Debt /a as of December 31, 1977 by Type of Creditor (S$ mLILion) Suppliers and Country financial institutions Bilateral. Multilateral Total Bilateral IGGI Members Japan 1,706 2,869 4,575 USA 1,357 2,037 3,394 West Germany 466 789 1,255 Netherlands 365 599 964 France 488 316 804 Canada - 288 288 United Kingdom 160 88 248 Belgium 140 68 208 Other 14 170 184 Subtotal -696 7,224 11,920 Multilateral IGGI Members IBRD/IDA 1,987 1,987 ADB 499 499 Subtotal 2,486 2)486 Total IGGI 4,696 7,224 2 486 14,406 Non-IGGI 273 1,660 - 1,933 Total 4.,9 8 84 2486 16,339 /a Tncluding undzisb ~~a' .'ivjvo jt i x1ps .ae s. INDONESIA External Public Debt as of December 31, 1977, by Major Currencies and Countries Amount ($ billion) Share (2) Amount (S billion) Share (2) Currency Disbursed Total Disbursed Total Country Disbursed Total Disbursed Total US Dollar 5.65 6.81 48.3 41.7 Japan 3.60 4.58 30.8 28.0 Yen 2.05 2.97 17.5 18.2 USA 2.90 3.40 24.8 20.8 D.M. 0.89 1.29 7.6 7.9 West Germany 0.86 1.25 7.4 7.7 DFL 0.71 0.94 6.1 5.7 Netherlands 0.73 0.96 6.2 5.9 Ruble 0.77 0.77 6.6 4.7 France 0.49 0.80- 4.2 4.9 Fr. Franc. 0.44 0.75 3.8 4.6 USSR 0.77 0.77 6.6 4.7 I 00 Other 0.66 1.14 5.7 7.0 Other countries 1.36 2.09 11.6 12.8 Multiple 0.52 1.67 4.4 10.2 kltilateral organizations 0.98 2.49 8.4 15.2 Total at June '78 exchange rates 11.69 16.34 100.0 100.0 16.34 16.34 100.0 100.0 Total at Dec. '77 exchange rates 11.4 15.9 11.4 15.9 Total at Dec. '76 exchange rates 11.1 15.5 11.1 15.5 Source: IBRD External ebt Files. rnI INDONESIA Central Government Budget Summary 1972/73-1978/79 (Rp billion) 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978 (actual) (actual) (actual) (actual-) (actual) Est. Actual Budget 1. Domestic Revenues 585.1 977.1 1,759.2 2,200.8 2,877.0 3,535.4 3,970.0 2. Routine expenditures/a 444.3 704.1 1,000.5 1,246.8 1,610.3 2,148.9 2,371.6 3. Government saving (1-2) 140.8 273.0 758.7 954.0 1,266.7 1,386,5 1,598.4 4. Development expenditures 290.7 473.7 966.4 1,425.2 2,043.5 2,156.8 2,454.7 5. Balance (3-4) -149.9 -200.7 -207.7 -471.2 -776.8 --770.3 --856.3 Financed by: 6. Counterpart funds /b 87.2 -93.6 37.6 20.5 10.2 35.8 45.1 7. Project aid 62.3 114.1 195.9 471.4 773.6 -737.6 811.2 8. Change in balances 0.4 -7.0 -25.8 -20.7 -7,0 -3.1 I ( --- = increase) /a 'Includes deb.t service payments, /b Program aid Source: Ministry of Finance. *r M X - 184 - ANNEX Table 5.2 Central Government Receipts, 1972/73-1978/79 (Rp billion) 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Tactual) Tactual) (actual) (actual) (actual) Est. Actual Budget I. Taxes on Income 301.1 511.1 1,234.5 1,558.3 2 029.2 211.3 2,808.0 1. Income tax 25.9 33.3 43.4 65.3 87.4 104.6 138.3, 2. Corporate tax 30.4 49.3 100.0 131.3 132.1 269.5 195.3 3. Corporate tax on oil 197.9 346.9 973.3/a 1,205.2 1,593.4 1,948.7 2,067.4 4. Withholding tax 31.8 56.5 78.4 97.0 147.0 201.7 312.0 5. IPEDA 15.1 19.5 29.0 35.8 42.6 52.5 57.5 6. Other - 5.2 10.4 23.7 26.7 34.3 37.5 II. Taxes on Domestic Consumption 125.9 .168.0 161.0, 234.4 322.1 397.8 502.0 1. Sales tax 36.2 ST6 6.3 122.4 164.6 203.4 259.2 2. Excises 46.8 62.4 76.2 98.5 131.7 181.9 225.1 3. Other oil revenues 31.6 37.8 -16.0 -1.3 16.6 - - /b 4. Itiscellaneous levies 11.3 12.2 15.4 14.8 9.2 12.5 17.7 III. Taxes on International Trade 141.4 253.6 300.7 309.5 421.5 482.7 540.7 1. Import duties 76.8 132.4 160.9 175.1 256.0 286.9 326.2 2. Sales tax on imports 29.9 51.5 69.1 73.4 102.0 114.6 132.1 3. Export tax 34.7 69.7 70.7 61.0 63.5 81.2 82.4 IV. Nontax receipt 16.7 44.4 62.1 98.6 104.2 143.t 119.3 Domestic revenue 585.1 977.1 1,72 2,20. 2,7. 3,535.1 3,970.0 V. Development Funds 149.5 207.7 233.5 491.9 783.8 773.4 856.3 1. Counterpart funds /c 87.2 93.6 37.6 20.5 10.2 .35.8 45.1 2. Project aid /d 62.3 114.1 195.9 471.4 773.6 737.6 811.2 Total revenues 734.6 14.~8 1,9. 2,9. 3,6. 4,0. ,2. /a Excludes underpayment of revenues, estimated.at about Rp 340 billion, due to the Government by Pertamina. /b Oil subsidies shown as Government expenditures (see Table 5.3). /c Program aid. /d Includes commercial bank and suppliers credits for development programs/projects. Source: Ministry of Finance. - 185- . 'E. TaLle 5.3 INDONESIA Central Government Expenditures, 1972/73-1978/79 (Rp billion) 1972/73 1973/74 1974/75 1975/76 1976/77 1977,'78 1978/79 (actual) (actual) Tactua) (actual) (actual) Est. Actual Budget Personal Expenditures 197.4 258.9 408.0 565.0 639.4 893.2 Wages and Salaries 125.6 166.5 292.8 386.4 420.6 672.9 797.2 Rice Allowance 32.2 50.7 60.2 116.5 129.4 126.2 131.2 Food Allowance 13.3 16.2 26.5 33.1 49.7 47.8 51.2 Other 19.4 18.2 17.9 17.5 26.2 31.5 31.7 External 6.9 7.3 10.6 11.5 13.5 14.8 16.[ Material Expenditures 92.1 109.1 167.0 292.3 390.1 376.8 406.3 Domestic 82.3 99.5 155.2 280.1 380.7 358.6 388.8 External 9.6 9.6 11.8 12.2 9.4 18.2 17.5 Subsidies to Regions 94.6 113.1 206.9 256.6 311.0 478.4 522.3 West Irian 10.6 8.2 13.2 13.4 18.6 21.7 22.1 Other regions 84.0 104.9 193.7 243.2 292.4 456.7 50u.2 Debt Service Payments 49.4 73.7 69.2 67.9 180.3 228.3 34b.1 Incernal 5.3 11.1 5.2 2.8 11.3 7.3 8.5 External 44.1 62.6 64.0 65.1 169.0 221.0 337.6 Other Expenditures 10.8 149.3 149.4 /a 65.0 /b 89.5 /c 172.2 /d 69.5e Routine Expenditures 444.3 704.1 1J000. 1,26. 1,610.3 Development Expenditures 290.7 473.7 966.4 1,252 2,043. 2 General 192.6 319.0 693.9 870.6 1,167.6 1,500.3 In Lieu of ADO 20.7 20.7 47.6 47.4 39.7 75. 85.7 IPEDA 15.1 19.9 29.0 35.8 42.6 52.5 57.5 Project Aid 62.3 114.1 195.9 471.4 773.6 737.6 811.2 Total Expenditures 735.0 1,117.8 1 26.0 3 4,326.3 /a Includes food subsidy (Rp 144 billion), other (Rp 5.4 billion). /b Includes food subside (Rp 50 billion), others (Rp 15 billion). Tc Includes -food subsidy (Rp .J 'biilion) s(Rp 50.4 . lion). 7__ Incude oibillion).671bii" /d Includes oil subsidv (Rp'5.1 bili ), Pr-ogram loan debt service (Rp 86.4 billion), and others (Rp 20.7 billion). - I - /e Includes oil subsid (R7pJ-5.1 billion), othprs (Rp 19.4 b tlion). Source: Ministry of Finance ANNEX - 186 - Table 5.4 INDONESIA Development Expenditures, 1972/73-1978/79 (Rp billion) 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 ---------------- Actual - Est. Act. Budget General /a Departments 126.8 171.4 226.2 403.5 568.5 744.5 1,029.8 Subsidies to villages 7.1 5.7 11.4 14.4 19.8 23.2 24.0 Subsidies to kabupatens 16.3 19.2 42.7 55.8 62.1 69.1 70.9 Irian Jaya 1.6 3.3 4.2 6.0 5.1 5.5 5.5 Subsidies on commercial import of fertilizer - 33.5 224.7 133.5 105.4 31.8 38.0 Investment through the banking system 36.4 57.1 98.0 125.7 226.7 166.9 68.6 Primary schools - 16.4 19.7 48.2 57.7 85.0 112.3 Others /b 4.4 12.4 67.0 83.5 122.3 165.3 151.2 Subtotal 192.6 319.0 693.9 870.6 1,116.6 1,291.3 1,500.3 Subsidies to provinces 20.7 20.7 47.6 47.4 59.7 75.4 85.7 IPEDA 15.1 19.9 29.0 35.8 42.6 52.5 57.5 Total (excl. project 228.4 359.6 770.5 953.8 1,269.9 1,419.2 1,643.5 aid) Project aid 62.3 114.1 195.9 471.4 773.6 737.6 811.2 Total (incl. project 290.7 473.7 966.4 1,425.2 2,043.5 2,156.8 2,454.7 aid) /a Excluding project aid. /b Includes Inpres. Source: Ministry of Finance. INDONESIA Development Expenditures by Sector (Rp.billion) Actual -Budget Total 1974/75 1975/76' 1976/77 1977/78 1978/79 Repelita II -Sector Amt % share mt % share Amt % share mt % share Amt % share Amt % share Agriculture & irrigation 299 31.0 270 19.0 364 17.8 380 17.6 414 16.9 1,726 19.1 (of which fertilizer subsidy) (255) (23.3) (134) (9.4) (105) (5.1) (32) (1.5) (38) (1.8) (534) (5.9) Industry & mining 70 7.3 120 8.4 201 9.8 139 6.4 222 9.0 751 8.3 Electric power 78 8.1 123 8.6 224 11.0 223 10.3 266 10.8 914 10.1 Transportation & tourism 125 12.9 326 22.9 408 20.0 355 16.5 389 15.8 1,603 17.7 Manpower and transmigration 3 0.3 10 0.7 27 1.3 61 2.8 122 5.0 223 2.5 Regional development 138 14.3 165 11.6 190 9.3 251 11.6 271 11.0 1,015 11.2 Education 51 5.3 114 8.0 136 6.7 211 9.8 269 11.0 780 8.6 Health 22 2.3 38 2.7 45 2.2 71 3.3 87 3.5 263 2.9 Housing & water supply 6 0.6 14 1.0 27 1.3 90 4.2 60 2.4 196 2.2 General public services /a 52 5.4 74 5.2 110 5.4 123 5.7 195 8.0 553 6.1 Government capital participation .105 10.9 132 9.3 234 11.5 190 8.8 82 3.3 743 8.2 Others /b 18 1.9 39 2.7 79 3.9 65. 3.0 80 3.3 280 3.1 Total development expenditures 966 100.0 11425 100.0 2,044 100.0 2,157 100.0 2,455 100.0 9,047 100.0 Total (excl. fertilizer subsidies) 741 1,291 1,939 2,125 2478,513 /a Law and order, defence and security, government apparatus. /b Trade and cooperatives, religion, information and science. Source: Ministry of Finance *- 4.11 INDONESIA Project Aid by Sector, 1974/75-1978/79 (Rp billion) Actual Budget Total 1974/75 1975/76 1976/77 1977/78 1978/79 Repelita III Amt. share Amt. share Amt. share Amt. share Amt. share Amt. share griculture & irrigation 26 13 43 9 116 15 146 20 101 12 432 14 ndustry-& mining 64 33 77 16 143 .18 95 13 168 21 .547 18 lectric power 39 20 90 19 171 22 164 22 185 23 649 22 ransportation & tourism 42 21 227 48 283 37 213 29 199 25 964 32 anpower & transmigration . . 1 . 1 . 10 1 12 1 23 1 egioral development . . . . 2 . 8 1 8 1 18 1 0 ducatlon, 8 4 7 1 5 1 30 4 22 3 72 2 ealth 7 4 7 1 6 1 15 2 22 3 57 2 ousiig.& water supply 1 . 3 1 3 . 28 4 18 2 53 2 eneral,public services - - - - - - - - 54 7 54 2 overnment capital participation 7 4 7 1 1 . 8 1 14 2 37 1 thers 1 . 11 2 37 5 23 3 10 1 82 3 Total Project-Aid /a 196 100 471 100 774 100 738 100 811 100 2,990 100 a Includes commercial credits for development programs/projects. ote: . = less than 1 Totals may not add due to rounding. ource: Ministry of Finance. - 189 - ANNEX Table 6.1 INDONESIA Money Supply (Rp billion) End of Currenc Demand deposits period Total Change (%) Position (%) Position (%) 1971 320.8 + 70.5 +28.2 199.4 62 121.4 38 1972 474.6 +153.8 +48.0 271.8 57 202.8 43 1973 669.0 +194.4 +41.0 375.0 56 294.0 44 1974 937.5 +268.5 +40.1 "494.2 53 443.3 47 1975 +312.6 +33.3 Qtr i 1,027.1 + 89.6 + 9.6 538.5 52 488.6 48 Qtr II 1,116.9 + 89.8 + 8.7 548.5 49 568.4 51 Qtr III 1,264.3 +147.4 +13.2 653.9 52 610.4 48 Qtr IV 1,250.1 - 14.2 1.1 625.3 50 624.8 50 1976 +407.9 +32.6 Qtr 1 1,427.9 +177.8. +14.2 659.2 46 768.7 54 Qtr II 1,432.7 + 4.8 + 0.3 679.9 47 752.8 53 Qtr III 1,607.5 +174.8 +12.2 799.9 50 807.6 50 Qtr IV 1,603.0 - 4.5 - 0.5 781.0 49 822.0 51 1977. +403.4 +25.2 Qtr 1 1,815.4 +212.4 +113 ;854 47 962.0 53 Qtr II 1,9 60 8 r.4i4 +9 47 1,036.4 53 Qtr III 2,014.3 + 53.5 + 97 48 1,043.4 52 Qtr IV 2,0,6.4 - 7.9 - tOv4,79i 49 1,027.3 51 1978 Qtr 210 7 9. A141.5 1,03 5- 8 49 1,072.0 51 Qtr II 2 A 1 to 50 1,110.7 50 Source: Bank -ndr ésiä. - 190 - ANNEX Table 6.2 INDONESIA Changes in Factors Affecting Money Supply (Rp billion) Claims Dn official Net Net claims entities Claims on Time & End of foreign on Central & public Blocked business & savings Net other period assets Government enterprises account individuals deposits /a items 1972 212.3 - 50.8 - 3.0 - 183.4 - 72.2 -115.9 1973 75.3 - 42.5 66.9 - 407.6, - 98.1- -214.8 1974 364.0 -116.6 280.4 - 145.9 -196.3 -208.9 1975 -588.5 162.3 926.0 -415.0 298.4 -213.3 142.6 1976 345.0 -290.1 401.9 - 51.4 361.5 -300.3 -113.7 Qtr I 4.2 52.6 127.8 - 20.3 115.3 -106.4 4.5 Qtr II 54.5 -149.1 128.5 - 69.3 - 47.1 - 51.3 Qtr III 107.4 - 2.3 91.8 - 84.7 - 77.2 - 29.6 Qtr IV 179.0 -191.4 53.7 - 31.1 92.1 - 69.6 - 37.3 1977 568.5 -259.1 -22.5 67.2 325.6 - 96.5 -179.9 Qtr I 135.5 2.4 76.1 - 75.9 - 1.1 - 76.2 Qtr II 215.1 -129.5 20.4 29.3 88.2 - 35.7 - 42.7 Qtr III 165.2 -117.0 -16.7 16.3 68.0 - 43.6 - 19.6 Qtr IV 52.7 - 15.0 -135.7 '54.2 93.4 - 16.1 - 41.4 1978 Qtr I 12.5 14.3 10.9 81.7 109.9 - 39.7 - 88.1 Qtr II - 60.7 - 94.9 179.7 6.7 104.2 - 63.1 31.6 /a Includes foreign currencies deposits held by residents. source: Bank Indonesia. - 191 - ANNEX Table 6.3 INDONESIA Consolidated Balance Sheet of Monetary System, 1973-77 (Rp billion) 1973 1974 1975 1976 1977 Assets Foreign Assets (net) 289 653 148 525 1,061 Domestic Credit 1,085 1$395 2 2,789 2$928 Claims on Public Sector 153 317 991 1,052 865 Central Government -32 -149 14 -276 -520 Official entities and public enterprises 185 466 1,392 1,794 1,784 Government-blocked account - - -415 -466 -399 Claims on Private Sector 932 1,078 1,376 1$727 2)063 Loans 809 1,032 1,321 1,650 1,985 Other claims 123 46 55 77 78 Total Assets/Liabilities 11374 2)048 2,514 3,314 3)989 Liabilities Import deposits 116 283 79 88 146 Other items (net) 271 313 457 595 696 Money and Quasi Money 987 1P452 1)978 2,631 3)147 Money 669 937 15 1$603 2 Currency 375 494 625 781 979 Demand deposits 294 443 625 822 1,027 Quasi money 318 515 728 1,028 1,141 Source: Bank Indonesia. - 192 - ANNEX Table 6.4 INDONESIA Banking System Credits by Economic Sector /a (Rp billion) Sectors 1973 1974 1975 1976 1977 1978 End End End June Dec. June 1. Agriculture /b 87.0 116.4 220.2 265.5 301.1 270.0 327.9 In Rupiah 87.0 116.4 211.9 255.3 289.3 264.4 327.6 In foreign exchange - - 8.3 10.2 11.8 5.6 0.4 2. Mining 8.1 10.7 741.3 3 1 2 l6 1,0 In Rupiah 8.1 10.7 88.4 175.6 192.3 197.2 212.4 In foreign exchange /c - - 652.) 860.3 891.9 864.5 888.1 3. Manufacturing Industry /b 277.6 358.9 718.8 990.5 1,099.5 1,156.2 1,309. In Rupiah 277.6 358.9 508.1 739.4 838.1 904.4 1,064.6 In foreign exchange - - 210.7 251.1 261.4 251.7 244.6 4. Trade /d 428.1 626.8 766.3 858.1 853.7 911.2 1,039.2 In Rupiah 390.9 604.5 741.1 836.7 840.6 897.7 1,031.8 In foreign exchange 37.2 22.3 25.2 21.4 13.1 13.5 7.4 5. Service Rendering Industry 78.9 121.7 171.6 260.4 284.0 319.2 355.5 In Rupiah 78.9 121.7 166.2 253.3 277.9 310.9 353.5 In foreign exchange - - 5.4 7.1 6.1 8.2 2.0 6. Others 179.5 339.9 133.9 163.5 203.6 223.9 190.1 In Rupiah 127.5 175.2 129.0 161.8 199.7 223.4 188.1 In foreign exchange 52.0/e 164.7/e 4.9 1.7 3.9 0.5 2.0 Total 12 3,7. 38 3,942.1 4,3 In Rupiah /f 970.1 1,387.3 1,844.6 2,422.2 2,637.8 2,798.1 3,178.0 In foreign exchange 89.3 187.0 907.5 1,151.7 1,188.3 1,144.0 1,144.4 /a Credits outstanding end of period. Includes unpaid interest. Excludes interbank credits, credits to Government and to nonresidents, special liquidity credits, special credit and foreign exchange component of project aid. /b Processing of agricultural products is classified into manufacturing industry according to International Standard Industrial Classification (ISIC) 1968. c Includes credits to state oil company for repayment of foreign borrowing. /d Includes credits for food procurement and hotel projects. /e Includes credits in foreign exchange for all sectors. , /f Includes investment credits, small scale investment credits (KIK) and permanent working capital credits (KMXP). Source: Bank Indonesia. - 193 - ANNEX Table 6.5 INDONESIA Banking System Credits by Type of Bank /a (Rp billion) 1974 1975 1976 1977 Bank Indonesia (Direct Credits) /b 232.3 895.3 1,219.0 1%234.9 In rupiah 232.3 246.4 358.7 370.4 In foreign exchange /c - 648.9 860.3 864.5 State Commercial Banks /d 1,135.8 19601.9 2,007.5 29279.4 In rupiah 1,003.8 1,397.2 1,774.7 2,070.9 In foreign exchange 132.0 204.7 232.8 208.5 National Private Banks 89.1 132.7 197.4 257.0 In rupiah 88.9 131.2 195.8 254.1 In foreign exchange 0.2 1.5 1.6 2.9 Foreign Banks 117.1 122.3 150.0 183.5 In rupiah 62.3 69.8 93.0 115.4 In foreign exchange 54.8 52.5 57.0 68.1 Total 1,574.3 2,752.1 3,573.9 3)954.8 In rupiah /e 1,387.3 1,844.6 2,422.2 2,810.8 In foreign exchange -187.0- --907.5 1,151.7 1,144.0 /a Credits outstanding end of period. Includes unpaid interest. Excludes interest and credits, credits to Government and to nonresidents, special liquidity credits, special credit and foreign exchange component of project aid. /b Excludes Bank Indonesia credits'to banks. /c Includes credits to state oil company for repayment of foreign borrowing. /d Includes BAPINDO. /e Includes investment credits, small investment.credits.(KIK) and permanent working capital credits (KMKP). - 194 - ANNEX Table 6.6 INDONESIA Small-Scale Investment Credits and Permanent Working-Capital Credits (Rp million) Small-scale investment credits /a Permanent working-capital credits /a Number of Approved Out- Number of Approved Out- End of applications value standing applications value standing quarter approved -- (Rp million) -- approved -- (Rp million) 1974 Qtr I 4,611 5,667 3,966 3,303 4,488 2,913 Qtr II 7,759 11,573 9,756 8,811 11,069 9,021 Qtr III 8,750 13,368 11,421 10,550 13,072 11,006 Qtr IV 9,554 15,253 13,039 14,524 15,502 12,513 1975 Qtr I 11,324 18,768 15,533 15,769 17,914 13,578 Qtr II 12,836 21,657 17,294 17,626 20,693 14,681 Qtr III 14,734 24,186 18,716 21,355 24,702 17,001 Qtr IV 16,646 28,091 21,644 24,141 28,689 19,233 1976 Qtr I 19,804 34,090 25,553 83,281 40,756 26,671 Qtr II 22,697 39,025 29,310 102,193 49,210 31,786 Qtr III 25,026 43,889 32,564 148,896 57,993 37,277 Qtr IV 27,827 49,602 36,086 166,149 67,080 41,446 1977 Qtr I 30,741 55,269 39,605 183,877 74,786 46,342 Qtr II 33,573 61,453 43,425 217,927 88,935 52,624 Qtr III 36,347 67,797 46,600 282,775 101,771 59,047 Qtr IV 39,737 74,186 50,462 322,391 114,990 61,839 1978 Qtr I 42,163 79,249 52,704 335,366 124,496 65,415 Qtr II 47,180 86,375 56,435 365,776 135,547 70,703 /a Cumulative as of end of period. Source: Bank Indonesia. - 195 - ANNEX Table 6.7 INDONESIA Medium-Term Investment Credits by Economic Sector /a (Rp million) 1973 1974 1975 1976 1977 Credit Approved /b 162,329 196,617 255,066 320,002 352,324 Agriculture 16,291 19,739 34,354 44,434 61,824 Manufacturing industry 80,952 96,637 108,658 130,264 143,782 Mining 495 221 154 5,296 5,296 Communication and Tourism 56,812 67,312 96,763 125,465 125,920 Others 7,779 12,708 15,137 14,543 15,502 Credit Outstanding 111,083 136,997 177,788 246,156 278,180 Agriculture 8,044 12,644 26,857 38,922 52,072 Manufacturing industry 59,640 69,331 78,306 94,066 105,754 Mining 161 147 143 4,278 3,277 Communication and Tourism 38,501 45,758 62,222 99,985 106,556 Others 4,737 9,117 10,260 8,905 10,521 /a Excludes small scale investment credits and permanent working capital credits. /b Cumulative as of end of period. Excludes repayments. Source: Bank Indonesia. INDONESIA Time Deposits with State Banks (Rp million) Of which Less than Interbank Nonresident End of 24 months 18 months 12 months 6 months 3 months 3 months Total /a time deposits time deposits 1971 - - 75,514 15,552 12,598 993 104,627 14 843 9,308 1972 - - 107,576 28,699 8,819 731 145,825 23,898 20,050 1973 - - 129,382 14,162 4,000 1,371 149,915 8,998 7,385 1974 179,934 8,090 37,226 8,298 3,708 1,385 238,641 6,983 82 1975 335,476 10,281 27,372 9,212 3,630 341 386,312 5,065 - 0' 1976 517,568 3,987 48,500 25,082 14,031 2,544 611,712 .. 1977 Qtr I 543,283 3,596 48,540 24,433 9,144 1,534 630,530 Qtr II 554,612 2,645 42,123 31,588 11,785 1,002 643,755 Qtr III 577,807 2,349 33,933 43,486 8,490 592 666,657 Qtr IV 604,770 1,951 33,559 40,967 10,041 828 691,846 1978 Qtr I 615,913 599 34,621 34,308 1,425 52 686,918 Qtr II 622,049 45 39,000 44,632 1,849 16 707,591 = Not available. /a Includes interbank time deposits and nonresident time deposits. Source: Bank Indonesia rM 00 INDONESIA Principal Agriculture Products by Subsectors, 1969-77 ('000 tons) Product 1968 1969 1970 1971 1972 1973 1974 1975 1976 /a 1977 /a Food crops 1. Ric,e 11,667 12,249 13.140 13,724 13,183 14,607 15,276 15 185 15,845 15,935 2. Corn 3,166 2,292 2,825 2,606 2,254 3,690 3,011 2,909 2,572 3,030 3.', Cassiva 11,356 10.917 10,478 10,690 10,385 11,186 13,031 12,546 12,191 12,169 4,. Sweet potato , 2.364 2,260 2,260 2,211 2,066 2,387 2,469 2,433 2,381 2,453 5. Soya,beans (shelled) 420 389 389 516 518 541 589 590 522 527 6. Ground, nuts (shelled) 298 267 267 284 282 290 307 380 341 403 Fishery 1. Saltwater fish 785 808 820 836 889 949 997 1,043 1,099 2. Freshwater fish 429 421 424 433 389 388 393 405 427 Meat & Dairy 9. Meat 309 314 332 366 379 403 435 449 469 10. Eggs 58 59 68 78 81 98 112 116 123 11. Milk (in million liters) 29 29 36 38 35 57 51 57 61 Cash crops 12w Rubber 778 802 804 808 845 818 782 785 818 13. Palm oil, 189 217 249 270 289 348 397 439 496 14. CocdnLt/copra 1,221 1,200 1,149 1.311 1,237 1,341 1,375 1,527 1,440 15. Coffee 175 185 196 214 150 149 160 179 183 16. Tea 62 64 71 51 67 65 70 73 80 17. Cloves 12 15 14 13 22 15 15 16 26 18. Pepper 17 17 24 18 29 27 23 25 39 19. Tobacco 84 78 76 79 80 77 82 88 103 20. Cane sugar 922 873 1,041 1,133 1,009 1,237 1,227 1,392 1,353 21. Cotton 3 3 2 2 3 7 5 5 2 forestry 22. Teakwood ('000 M3) 520 568 770 597 676 620 595 480 23. Other timber ('000 M3) 7,587 11,856 12,968 17,120 25,124 22,660 15,701 20,842 22,360 Not available. /a Preliminary estimates. Sources: Ministry of Finance. pc I - 198 - ANNEX Table 7.2 INDONESIA Agricultural Production of Major Crops by Type of Product ('000 tons) Product 1969 1970 1971 1972 1973 1974 1975 1976 /a Smallholders Rubber 558 571 572 559 599 571 536 539 Coconut/copra 1,220 1,198 1,147 1,308 1,233 1,335 1,370 1,521 Coffee 126 170 178 196 130 132 144 162 Cloves 11 15 14 13 22 15 15 16 Tea 22 21 24 7 14 15 14 16 Sugar 220 196 221 247 199 250 223 250 Tobacco 75 69 69 74 69 69 74 76 Pepper 17 17 24 18 29 27 23 25 Cotton 2 3 2 2 3 7 5 5 Palm oil - - - - - Palm kernel - - - - - - - Private Estates Rubber 110 113 114 128 109 108 109 111 Coconut/copra 1 2 2 3 4 6 5 6 Coffee 5 6 7 6 4 7 6 6 Cloves I .. .. ** ** Tea 9 9 10 7 10 11 10 10 Sugar 72 74 122 130 118 127 126 130 Tobacco - - - - - - - Pepper - Cotton - - - - - - - Palm oil 60 70 79 81 82 104 126 145 Palm kernel 13 15 18 17 18 21 24 31 Government Estates Rubber 110 118 118 121 137 138 137 135 Coconut/copra - - - - - - - - Coffee 8 9 11 12 6 10 10 11 Cloves - - - - - - - Tea 31 34 37 37 43 40 46 47 Sugar 630 603 708 756 693 860 878 1,012 Tobacco 9 9 7 5 11 8 8 12 Pepper - - - - - - - Cotton - - - - - - - - Palm oil 129 147 170 189 207 271 271 294 Palm kernel 28 33 39 42 46 52 57 64 TOTAL Rubber 778 802 804 808 845 818 782 785 Coconut/copra 1,221 1,200 1,149 1,311 1,237 1,341 1,375 1,527 Coffee 175 185 196 214 150 149 160 179 Cloves 12. 15 14 13 22 15 15 16 Tea 62 64 71 51 67 65 70 73 Sugar 922 873 1,051 1,133 1,009 1,237 1,227 1,392 Tobacco 84 78 76 79 80 77 82 88 Pepper 17 17 24 18 29 27 23 25 Cotton 2 3 2 2 3 7 5 5 Palm oil 189 217 249 270 289 348 397 439 Palm kernel 41 48 57 59 64 73 81 95 = Not available. /a Preliminary estimates. Source: Department of Agriculture - 199 - ANNEX Table 7.3 INDONESIA Rice, Area Harvested, Production and Yield 1968-77 Area Average Paddy Rice Harvested Yield Output Output Year (000 Ha) (Tons/Ha) (000 tons) (000 tons) 1968 .. .. 22,435 11,667 1969 8,014 2.94 23,553 12,249 1970 8,135 3.11 25,267 13,140 1971 8,324 3.17 26,387 13,724 1972 7,898 3.21 25,353 13,183 1973 8,403 3.34 28,091 14,607 1974 8,509 3.45 29,382 15,276 1975 8,495 3.44 29,197 15,185 1976 8,368 3.64 30,470 15,845 1977 8,388 3.65 30,645 15,935 = Not available. Source: Department of Agriculture. INDONESIA Rice Production, Imports, Procurement and Consumption, 1960-77 Less seed /a Procure- BULOG Total Per capita Production feed & losses Imports ment stocks available Population availability --------------------------- (Million tons) -------------------------- (Millions) (kg) 1960 10.17 0.92 0.89 0.28 - 10.14 94.79 107 1961 9.58 0.86 1.01 0.26 -0.03 9.70 97.02 100 1962 10.28 0.93 1.01 0.52 0.02 10.34 99.05 104 1963 9.16 0.82 1.07 0.44 -0.12 9.29 101.04 92 1964 9.61 0.86 1.02 0.34 0.00 9.77 103.16 95 1965 10.24 0.92 0.14 0.32 0.10 9.56 105.33 91 1966 10.75 0.97 0.24 0.64 -0.10 9.92 107.54 92 1967 10.40 0.94 0.35 0.52 0.03 9.84 109.80 90 1968 11.67 1.05 0.63 0.60 -0.35 10.90 112.10 97 1969 12.25 1.10 0.60 0.20 0.30 12.05 114.46 105 1970 13.14 1.18 0.96 0.49 -0.28 12.64 116.86 108 1971 13.72 1.23 0.49 0.62 0.00 12.99 119.23 109 1972 13.18 1.19 0.74 0.16 0.36 13.09 121.61 108 1973 14.61 1.32 1.66 0.26 -0.42 14.53 124.05 117 1974 15.28 1.38 1.07 0.53 -0.29 14.68 126.53 116 1975 15.18 1.37 0.68 0.54 0.10 14.59 129.06 113 1976 15.84 1.42 1.28 0.39 0.20 15.90 131.33 121 1977 15.93 1.43 2.30 0.41 0.08 16.88 133.96 126 /a Assumes seed (1.5%), losses (6.0%) and feed (1.5%). Sources: Production: Department of Agriculture and BPS Imports, Stocks and Procurement: BULOG Population: BPS M4s - 201 - ANNEX Table 7.5 INDONESIA Area Covered under Rice Intensification Programs, 1967-77 ('000 ha) Year Bimas Inmas Total 1969 1,309 821 2,130 1970 1,248 905 2,153 1971 1,396 1,392 2,788 1972 1,243 2,020 3,263 1973 1,889 2,222 4,111 1974 2,996 1,094 4,090 1975 3,087 1,161 4,248 1976 2,974 1,500 4,474 1977 2,508 2,775 5,283 Source: Department of Agriculture. INDONESIA Уоlиое иnд Va1ue of Log Ехригси Ьу Sресlеи, 1968-)6 _ 1968 l969 _ 1970 l97I 19)2 _ 1973 1974 1975 1976 Voluo�e Velue Volume Уе1ие Уоlиое Уа1ие Уоlиве Уа1ие Уоlите Ув1ие Уоlите Уи1ие Уоlиве Уа1ие Уо1ик Уа1ие Уо1�те Уа1ие --------------------'-------------------- iУоlгае � l,000 си • - Уа1ие � $l,U00) Мегап[1 - - - - 5,018 - 6,749 113,460 8,716 150,072 11,272 788,517 10,641 491,ОЭ0 9,941 759,60Э 11,956 - k+�1n - - - - 681 - 1,120 12,]26 1,657 2Э,б14 1,90Э 61,589 922 49,2Э9 ВОО 38,175 1,271 - Кариг - - - - 85 - 92 1,107 150 1,883 1,752 70,804 1,513 59,327 1,426 42,704 l,889 - Teak 29 ' 78 - l18 - )5 2,609 49 3,162 72 5,452 72 B,9S6 40 6,504 51 - Ри1е1 - - - - 11В - 26 18S 56 45В Э34 4,3tl7 Э23 5,179 16S 2,0Э) 532 - 1 Аgисl�lь - - - - 425 - 31U 5,640 349 5,480 760 ц1,119 ц0 20,777 75] lS,S09 410 - N Ebony - - - - - - ) 1,155 16 Э,15Э 26 6,791 12 2,В46 16 4,401 l8 - � N Кауи Kuku - - - - - - 5 641 5 600 Ь 81l 2 287 - - - - � Квуи Ceudana----.- - '- - --. - - - 1 627 1 1,031 1 122 - - - - - - Sonokellnк - - - - 1,396 - 2 175 3 Э85 '8 1,009 2 285 2 200 - - tlakau (Mengruveи) - - - - - - 15 77 64 207 54 - - - 101 605 В9 !74 Ситра[ап 1,210 - 3,558 - 440 - 2,79Ч 70,67З 2,825 40,3U4 Э,ЬЧ9 5Э,084 4,[54 87,427 1,628 31,094 2,948 - то[а1 1_ 2, Э_9 l1,100 Э1596 25,300 7�401 91,Ы6 10,76! 168,675 1Э,891 270,747 1Ч,43Э 5tl3,345 18,082 72Э,Э80 13,921 499,976 1В,521 = 5ource: D1[ec[orace Гх nerul of Forestry, SCa[1e[1k Kehu[anen (nдопеаlи. ��� Т#ц(3NёSiA Voluma and Vаtцв af [.og £x,prirta Ь„у rieвtfnacloп, 19b9-7б t9б9 i974 197! 1972 l9Т3 t974 _ 19Т5_ 1976 _ цоlите Уаliге Volume Va1ue Yuiume Va1ue цоlите Value Vaiume Уа1ие ц81и®е цаlеле Уаlите Va1ue Уоlите Vв1ие ______,..__�_-'___�r..Y._.�_....____...._�.__..------.._�_..У.----- (цоlите � (,4а4 си т - цы3ие * $t,0aa} -__"-----____..______�._»----..У._У..�.____ ,ioiи З 2Ь8 .2Э,Ь55 7,ЭЭt 83,459 10г32! 15b,5U3 1_3,353 213,146 lВ,46й 5й8,Э35 i7,650 697,й45 1Э,й73 й71,322 17,2Ьб � lарап '2,Ьб9 )8,998 Ь,135 71,242 . 8,Э0! 127,913 4,687 155,185 12,345 ЭЬ2,ТО3 l2,t87 475,752 7,587 2Ь8,493 9,9Э2 - Кигаа, kep, оЕ !8Ь 1,997 4S4 4,977 485 7,941 l,52U $5,774 l,9а0 Ь9,502 2,I36 43,48i 2,74! Чb,749 Э,Sа! - Т'aiыan 2б5 939 349 Э,940 56D 7,813 l,2й0 l8,178 1,783 Ь2,749 2,22Т 8U,i07 2,2G3 &9,7Si! 2,581 - Singaгw ге tl8 7а3 2J9 1,55Э Э82 3,8l5 498 7,44! 1,903 45,301 8!9 33,852 7S5 27,7]5 1,026 - itung йилg - - - - 1й2 2,05! 178 1,2б4 6! 2,25а 99 й,77а t3U й,254 - - ucr,�r5 9п 1,в1н !!8 l,з87 ч35 ь,914 zзо з,308 72 5,а7о 18г 9,5з3 97 а,т9s z25 - k;uruYe 273 2,85(t 283 3,Э9Э 33! 5,1G5 382 6,72й 7(1! 28,78'L 373 22ib8 433 2Ь,I92 !_�32 _ ! I+a1y 209 1,flц7 18? 1,й75 287 3,335 ]37 й,972 323 1k,753 23Э t3,276 22[ lЭ,б2а 4�1 Un1reJ Kfпgdom I6 !Ь7 5 57 й 81 6 132 2i l,32Э 2 42! З! 2,008 - _ N с.� СКк,ьапу, w. !й ь![ 1! йг7 5 1s2 5 зй9 1а, 4,498 25 2,l8ь 33 2,1зs - � Metherlands 1а й4Ь бй 91а 4 2t}а 7 4а7 35 2,017 t1 1,3Э9 49 2,27В - ' ! act�ers 2а 524 2! 53b 2Ь 2,4l4 Э! 864 2l1 Ь,l91 102 2,t76 99 b,15! 7й3 - Amrrlca ____, � 1 32 3 6! �! 5kЬ 22 Ь98 24 !,l17 ] 2Ь1 !� �,~ Апясгаllа 3 2Ь 16 t75 23 252 25 378 tlU 2,В9С! 35 l,7ЧВ 1(з 6i2 12 _� (lchers �- 5 t F 84 t.ST9 lLТб !д5l8 SЬЬ 2.Ь40 � w_ ? l�569 �- __„_ '3'аtнl 3,596 26,5ЭЬ Т_уб32 8Ь,Ь58 10,1b1 tй8,Ь35 l3,89t 21ц,.J44 l4,LЗЧ 58Э,345, }В,08] 723�3Н11 l3,92! 4_Ч9+_97Ь t8,521 � Sпикее: t3irectorate Скпеrаl of Foraвcry, 5cыtiяtfk Кеliисапап lпдопеяiа. а� ь�- гi �о к :, 204 ANNEX Table 7.8 INDONESIA Fisher4es Produr tior 1 1960-76 (Tons) Inland fishery Culture Marine Open Brackish Fresh Paddy Year Total fishery Subtotal water Subtotal water pond water pond Cage field 1960 756,765 410,043 346,722 249,674 97,048 43,078 39,801 - 14,169 1961 910,281 525,198 385,083 297,988 87,095 32,807 36,585 - 17,703 1962 908,293 537,983 370,310 281,449 88,861 32,704 39,925 - 16,232 1963 935,094 558,970 376,124 279,165 96,959 39,239 41,580 - 16,140- 1964 992,854 590,000 402,854 272,860 129,994 42,421 66,517 7 21,049 1965 1,102,335 665,107 437,228 296,007 141,221 53,413 63,302 279 24,227 1966 1,201,828 720,236 481,592 347,591 134,001 54,067 59,983 101 19,895 1967 1,180,434 677,933 502,501 364,875 137,626 56,750 60,230 106 20,540 1968 1,159,040 722,512 436,528 320,410 116,118 43,528 53,348 160 19,082 1969 1,214,399 785,344 429,055 314,201 114,854 51,876 42,180 574 20,224 1970 1,228,512 807,391 421,121 286,519 134,602 55,908 51,345 3,126 24,223 1971 1,244,555 820,447 424,108 285,745 138,363 60,788 54,647 388 22,540 1972 1,268,909 836,289 432,620 301,412 131,208 51,203 50,100 10,196 19,709 1973 1,277,512 888,518 388,994 249,592 139,402 60,481 51,870 345 26,706 1974 1,336,268 948,566 387,702 240,893 146,809 66,756 54,739 503 24,811 1975 1,390,074 996,856 393,218 228,571 164,647 78,776 55,403 480 29,988 1976 1,448,000 1,043,000 405,000 230,000 175,000 86,000 56,500 500 32,000 Source: Directorate General of Fisheries, 1977. -205 - ANNEX Table 7.9 INDONESIA Volume and Value of Fish Exports and Imports, 1960-76 (US$'000) Volume Value Year Export Import Export Import --- (tons) ---- - (US$'000) -- 1960 8,053 16,071 731 2,590 1961 10,739 10,851 1,311 1,903 1962 8,282 1,669 1,081 340 1963 5,114 626 850 341 1964 2,057 738 361 447 1965 3,473 69 368 69 1966 8,553 487 667 178 1967 7,782 2,198 1,672 624 1968 19,717 2,521 2,822 507 1969 21,426 2,232 2,444 421 1970 22,060 3,801 6,959 965 1971 30,756 6,741 18,994 1,518 1972 41,156 4,883 34,941 1,605 1973 52,178 7,732 68,185 2,463 1974 54,953 6,980 92,344 2,438 1975 40,738 6,696 88,191 2,374 1976 52,933 22,028 131,453 10,049 Source: Directorate General of Fisheries, 1977. -206- ANNEX Table 7.10 INDONESIA Export Volume of Fish by Type, 1968-76 (Tons) 1968 1969 1970 1971 1972 1973 1974 1975 1976/a Fish, Crustaceans and Molluscs, Fresh, Frozen, Dried, Salted or Smoked 6,95 9,052 9,954 21,160 29,773 7 4 3 43868 Fish, fresh, chilled or frozen 3,445 12 LL L81 LLQ 6,29 ,1L m 2 7 392 Of which: Ornamental fish 23 42 104 103 190 286 305 321 350 Tuna - - - - - - - 424 621 Fish, dried, salted or smoked 219 233 241 232 415 812 1,101 1,148 L10 Crustaceans and molluscs, fresh, frozen, dried, salted, etc. 3,291 6,411 8,247 16,547 25,144 32,370 36,961 28,624 35,236 Of which: Crabs - - - - - - - 1,017 1,344 Lobster - - - - - - - 76 177 Shrimps and prawns, headless, etc. 2,461 5,129 6,874 14,986 22,620 28,146 32,110 22,338 29,089 Shrimps and prawns, others - - - - - - - 1,238 998 Shrimps and prawns, dried, salted, etc. 441 509 459 333 791 641 611 969 1,192 Jelly fish, dried, salted, etc. - - 601 389 782 1,935 2,411 2,028 1,671 Miscellaneous Fish Products 12,09 9,15 8,836 5,503 7,95 27 5,69 3888 Of which: Blachan 3,482 2,410 1,686 910 1,615 464 107 i2 69 Frog legs, fresh, chilled, frozen - 28 652 568 867 2,867 1,182 1,553 3,160 Shrimp krupuk 315 305 547 504 643 1,018 1,085 583 1,148 Crocodile skins 68 66 42 43 78 Ill 83 44 37 Tortoise shell and waste 10 9 10 34 49 107 92 20 71 Mother of pearl 431 267 179 120 240 84 157 300 505 Troca and lola 1,408 1,927 1,895 1,701 2,136 1,959 1,636 910 1,380 Powder and waste of shells 3,596 4,000 3,570 1,366 1,324 1,835 680 2 66 Products of Aquatic Plant Origin 2,469 2.25 3,071 3,888 3,721 3 9 I2 3 921 229 Of which: Sea weed 2,469 2,252 3,071 3,888 3,721 3,309 3,344 1,602 1,988 Total 19 21 22,060 30,756 41,156 5 5 40,738 52 933 /a Provisional. Source: Directorate General of Fisheries, 1977. -207- ANNEX Table 7.11 INDONESIA Export Value of Fish by Type, 1968-76 (USS'000) 1968 1969 1970 1971 1972 1973 1974 1975 1976/a Fish, Crustaceans and Molluscs, Fresh, Frozen, Dried, Salted or Smoked 1, 3.1,924 61,50 8 83,300 124 Fish, fresh, chilled or frozen 547 353 452 1477 1,098 1.695 222 1,756 2,439 Of which: Ornamental fish 33 20 38 29 37 56 54 92 61 Tuna - - - - - - - 258 409 Other salt.water fish 512 326 169 892 471 678 1,145 1,243 1,934 Roes 2 7 245 556 590 961 1,026 159 - Fish, dried, salted or smoked 83 34 98 128 242 263 211 652 18 Crustaceans and molluscs, fresh, frozen, dried, salted, etc. 867 1,018 4,6 1569 30,584 5954 852 8083L2,9 Of which: Crabs - - - - - - - 40 39 Lobster - - - - - - - 277 751 Shrimps and prawns, headless, etc. 718 877 4,216 14,658 29,710 57,476 84,426 75,249 114,814 Shrimps and prawns, others - - - - - - - 2,714 1,049 Shrimps and prawns, dried, salted, etc. 106 101 62 39 99 86 144 191 372 Jelly fish, dried, salted, etc. - - 198 351 548 1,617 877 1,924 2,209 Miscellaneous Fish Products 855 723 1 4ll 1 331 2 418 6 039 3 516 294 7159 Of which: Blachhn 75 44 33 16 31 8 3 2 100 Frog legs, fresh, chilled, frozen - 9 286 384 749 3,774 1,258 2,768 3,924 Shrimp krupuk 86 62 312 277 396 770 1,013 592 1,442 Crocodile skins 402 340 264 267 577 895 575 329 469 Tortoise shell and waste 2 2 21 48 34 111 54 40 21b Mother of pearl 60 27 39 18 72 12 22 45 175 Troca and lola 130 161 287 240 244 160 156 107 319 Powder and waste of shells 44 39 50 14 38 18 8 1 - Pearls, unmounted, set, strung - - 2 2 193 195 327 338 356 Products of Aquatic Plant Origin 82 58 85 100 115 109 94 58 75 Of which: Sea weed 82 58 85 100 115 109 94 49 58 Total 2,822 I L 88,191 131,453 /a Provisional. Source: Directorate General of Fisheries, 1977. INDONESIA Output, Trade and Domestic Consumption Data for Cassava, 1968-76 ('000 tons) Actual to Actual % Actual Domestic % to animal animal % to to % Actual For human Year Output exported exports supply feed feed industry industry wasted wastage consumption 1968 11,356 4.6 521 10,835 2 217 21.3 2,300 10 1,083 7,175 1969 10,918 8.5 930 9,987 2 200 23.2 2,313 10 999 6,416 1970 10,478 9 945 9,533 2 191 24.4 2,328 10 953 5,948 C) 1971 10,690 14 1,494 9,196 2 184 24.8 2,274 10 920 5,693 oa 1972 10,385 9.7 1,007 9,378 2 188 24.3 2,274 10 938 5,853 1973 11,186 1.9 210 10,976 2 220 21.8 2,387 10 1,098 7,050 1974 13,031 8.5 1,104 11,927 2 239 23.o 2,736 10 1,193 7,538 1975 12,546 2.4 303 12,243 2 245 22.o 2,693 10 1,224 7,931 1976 12,468 - - 12,468 2 249 22.o 2,742 10 1,247 8,229 Source: National Input Output tables, Monthly Statistical Bulletin, BPS. I-. >' INDONESIA Output, Trade and Domestic Consumption Data for Maize, 1968-77 ('000 tons) Actual % Actual Domestic % to animal animal % to Actual For domestic Year Output exported exports supply feed feed seed to seed consumption 1968 3,166 2 66 3,100 2 62 2.1 66 2,910 1969 2,293 6.8 156 2,137 2 43 3.3 70 1,981 1970 2,825 9 253 2,572 2 51 1.9 50 2,420 1971 2,606 8.4 219 2,387 2 48 2.8 66 2,225 1 1972 i2 54 3.5 76 2,176 2 44 2.6 56 2,032 N 1973 3 690 5 181 3,509 2 70 2.0 72 3,297 1974 3,011 6.6 197 2,814 2 56 2.1 60 2,640 1975 2,903 1.8 51 2,852 2 57 1.6 46 2,692 1976 2,572 - - 2,572 2 51 2.0 57 2,470 1977 3,030 - - 3,030 2 61 2.0 51 2,908 Source: National Input Output tables, Monthly Statistical Bulletin, BPS. M > INDONESIA Trade and Domestic Consumption Data for Wheat and Wheat Flour, 1968-77 ('000 tons) Wheat Wheat flour Changes Total % lost Total amt Changes Gross Total available Year Import in stocks supply in milling flour in stock imports for consumption 1968 nil nil nil nil nil - 367 367 1969 nil nil nil nil nil - 294 294 1970 nil nil nil nil nil - 401 401 1971 88 45 43 28 31 - 383 414 1972 407 29 378 28 372 -16 17 305 1973 663 0 663 33 447 +46 21 452 1 1974 672 0 672 28 484 -60 81 625 1975 717 0 717 28 516 +10 10 516 1976 990 0 990 28 713 11 724 1977 1,000 0 1,000 28 720 .. 41 761 = Not available. Source: National Input Output tables, Monthly Statistical Bulletin, BPS. ANNEX - 211 - Table 7.15 INDONESIA Aggregate Output, Trade, and Domestic Consumption Data For Vegetables and Sweet Potatoes, 1968-76 ('000 tons) Vegetables Sweet Potatoes Total Total Net domestic Net domestic Output trade utilization Waste Output trade utilization Waste 1968 3,738 +11 3,727 373 2,364 - 2,364 237 1969 3,831 +11 3,820 382 2,260 - 2,260 226 1970 4,079 +13 4,066 407 2,175 - 2,175 218 1971 4,180 +13 4,167 417 2,211 - 2,211 221 1972 4,329 +11 4,318 432 2,066 - 2,066 207 1973 2,295 +28 2,267 218 2,387 - 2,387 239 1974 2,579 +45 2,534 245 2,470 - 2,470 247 1975 1,889 +30 1,859 180 2,433 - 2,433 243 1976 .. .. .. .. 2,418 - 2,418 242 Not available. Source: National Input/Output Tables, Monthly Statistical Bulletin, BPS. INDONESIA Per Capita Consumption of Selected Food Items, 1968-75 Wheat and Maize (including Cassava (incl. Coconut Sweet wheat flour fresh maize) cassava tapioca) and copra Vegetables All sugar potatoes Kg/yr. Cal/day Kg/yr. Cal/day Kg/yr. Cal/day Kg/yr. Cal/day Kg/yr. Cal/day Kg/yr. Cal/day Kg/yr. Cal/day 1968 3.30 32 31.18 307 64.70 194 11.92 36 30.17 19 10.71 109 19.13 50 1969 2.59 25 32.43 221 56.62 163 11.91 36 30.26 19 11.42 116 17.90 48 1970 3.45 33 25.83 252 51.35 154 14.73 44 31.50 20 11.24 114 16.85 45 1971 3.50 33 23.70 231 48.20 146 13.00 39 31.50 20 12.60 129 16.70 44 1972 2.51 24 21.71 214 48.38 146 12.45 38 31.95 20 12.26 115 15.28 41 1973 3.63 35 31.46 307 57.07 174 23.46 71 16.31 10 11.24 115 17.24 46 1974 4.90 47 25.69 251 59.50 180 17.78 54 17.83 11 12.72 130 17.42 46 1975 3.95 38 25.61 250 61.07 184 16.03 48 12.76 8 10.14 106 16.77 45 Source: National Input/Output Tables, Monthly Statistical Bulletin, BPS. * I INDONESlA Production of Selected Industrial Goods, 1969/70-1977/78 Product Unit 1969/70 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 /a Vegetable Oil 000 tons 290 284 287 293 293 294 299 309 308 Cigarettes Bill. -pieces 30 34 36 41 51 52 57 61 64 Text ie Yarn' 000 bales 182 217 239 262 316 364 445 623 678 Fabrics Mill. meters 450 598 732 852 927 974 1,017 1,240 1,333 Paper 000 tons 17 22 30 40 47 43 47 54 84 Urea 000 tons 85 103 108 120 116 209 387 412 990 Sail 000 tons 153 58 41 183 86 70 147 563/b 786/b Caustic Soda 000 Eons 1 1 2 3 3 4 9 8 7 Al-Sulphate 000Ton - 3 7 12 17 14 14 15 19 Sulphuric Acid 000 tons - 4 9 11 18 9 15 24 20 Oxygen Million m3 2 3 4 4 5 5 5 6 6 Acetylene. 000,m - - - 12 99 124 242 289 192 Matches Mill. boxes 269 322 349 475 556 707 780 772 506 Soap 000 tons i33 132 132 132 131 149 165 176 195 Toothpaste, Mill. tubes 15 25 26 30 32 46 108 104 104 a Car Tires O i pieces 366 401 507 858 1,361 1,704 1,796 1.883 2,339 Bicycle Tiies 000 pleces Zi05 2,164 1,850 2,632 5,880 6,279 7,129 7,297 7,382 Glass Sheet' Sq. 't.. - - - - 50 60 62 69 74 Class Bottles 000' cons 12 11 7 17 37 35 32 57 54 Reinforcing Iron 000 tons 5 10 74 75 120 110 202 296 240 Zinc Plate 000 tons 9 34 67 70 70 70 145 156 185 Steel Pipes 000 tons 2 3 6 34 80 94 97 107 120 Steel Cables 000 tons - - - 15 30 30 43 85 98 Car Batteries 000 pieces 32 56 262 130 140 180 220 480 575 Dry-cell Batteries Mill. pieces 54 55 72 72 132 144 240 420 443 Radin Sets 000 pieces 364 393 416 700 900 1,000 1,100 1,100 1,000 Television Sets 000 pieces 5 5 .65 60 60 135 166 213 482 Sewing Machines 000 pieces 14 14 262 340 500 400 520 400 484 Automobiles 000 units 5 3 16 23 37 66 79 75 84 Motorcycles 000 units 21 31 50 100 150 251 300 267 272 /a Pteliminary estimates /b Includes domestic product ion Sources: Ministry of industry - 214 - ANNEX Table 8.2 INDONESIA Production, Imports and Estimated Consumption of Cement, 1967-77 Consumption /a Year Production Imports Total Per capita --- (1,000 tons) ---- (1,000 tons) (kg) 1967 317.5 197.1 515.5 4.7 1968 411.9 249.8 616.7 6.0 1969 529.7 478.0 1,006.8 8.9 1970 562.3 639.1 1,201.4 10.3 1971 536.2 898.6 1,343.9 12.3 1972 628.4 1,069.4 1,697.7 14.0 1973 740.4 1,496.8 2,237.2 18.0 1974 830.9 1,737.8 2,568.7 20.1 1975 881.0 1,609.2 2,490.2 19.1 1976 1,760.7 1,360.0 3,120.7 23.4 1977 2,440.0 987.2 3,427.2 25.1 /a Consumption = Production + Imports. Source: BPS - 215'- ANNEX Table 8. INDONESIA Estimated Cement Production and Capacity through 1980 Design Mechanical Commercial Plant capacity completion production 1976 1977 1978 1979 1980 ('000 tons) ('000 tons) --------- PT Semen Padang Rehabilitasi 330 6/76 8/76 297 330 330 330 330 Indarung II 600 1/79 3/79 - - - 375 600 Indarung III 600 4/82 6/82 - - - - - 1 5 297 330 330 705 930 PT Semen Baturaja 500 9/79 10/79 - - - 200 500 PT Semen Cibinong Phase 1 500 7/75 10/75 414 450 500 500 500 Phase II 500 10/77 12/77 - - 375 450 500 Phase III - - - - - - - - 1,000 414 450 875 950 1,000 DICE Phase I 500 - 8/75 450 475 500 500 Phase II 500 - 8/76 ) 527 400 425 450 500 Phase III 1,000 12/78 2/79 - - - 400 700 2100 527 850 900 1,350 1,700 PT Semen Nusantara 600 3/77 6/77 - 240 550 600 600 PT Semen Gresik Pros Basah 500 - - 406 460 475 475 500 Pros Kering 1,000 5/78 7/78 - - 250 750 950 1,500 406 460 725 1,12 5 PT Semen Tonasa .Tonasa I 120 - - 117 110 110 110 110 Tonasa II 510 6/79 9/79 - - - 60 375 Tonasa III 510 6/82 9/82 - - - - - 1,140 117 110 110 170 485 Total Production 8 2,440 3,490 5,20 6 Source: LPEM, 1978. - 21b - ANNIX Table 8.4 INDONESIA Forest-Based Industries in Indonesia Sawmills Veneer & Plywood Pulp and Paper Board Mills Units Capacity Units Capacity Units Capacity Units Capacity (cu m) (cu m) (cu m) (cu m) Western Indonesia 769 2,334,540 8 446,300 1 100,000 1 Public 8 82,940 2 900 - - Private 761 2,251,600 6 445,400 1 100,000 - Central Indonesia 245 4,751,000 7 635,000 2 75,000 1 12,000 Public 2 33,000 - - 2 75,000 1 12,000 Private 243 4,718,000 7 635,000 - - - - Eastern Indonesia 20 94,104 - - - - - - Public 5 14,160 - - - - - - Private 15 79,944 - - - - - - Total 1,043/a 7,179,644 15 1,081,300 3 175,000 2 12,000 Public 15 130,100 2 900 3 175,000 2 12,000 Private 1,019 7,049,544 13, 1,080,400 - - - - /a Capacity: 157 mills with vapacity greater than 1,000 cu m/month. 226 mills with capacity of 200-1,000 cu m/month. 657 mills with capacity less than 200 cu m/month. Source: National Progress Report on Forestry, DGF, May 1977. INDONESIA Crude Oil Production, 1973-78 (In '000 bbl) 1977 1978 1973 1974 1975 1976 Qtr I QLr II Qtr III Qtr IV Total Qtr I Qtr II First half Onshore Pertamina 37,687 40,143 32,590 31,332 7,340 7,561 7,893 7,927 30,721 7,668 8,104 15,772 Lemigas 431 362 306 269 73 75 68 69 285 63 51 114 Caltex /a 351,528 329,907 300,879 307,616 73,855 74,586 73,670 70,839 292,950 70,763 69,838 140,601 C & T /a 1,035 1,959 1,944 1,804 448 685 642 684 2,460 654 610 1,264 Stinvac /a 22,768 16,626 1,3888 12,786 2,740 2,825 3,205 3,203 11,973 3,050 2,962 6,012 PT S.I. (Corr. Block) /b 594 412 306 244 38 37 72 38 185 32 34 66 Asamera 6,470 7,047 6,115 4,771 968 868 735 678 3,249 639 667 1,306 Tesoro 554 2,572 3,091 4,857 1,119 1,072 1,008 943 4,142 907 873 1,780 A.A.R. 468 518 428 426 98 92 92 84 360 81 93 174 Petromer Trend 3,425 11,089 23,017 27,710 8,264 7,405 6,600 6,387 28,656 6,401 6,584 12,985 C & T - - 464 796 1,457 2,088 2,558 2,693 8,796 2,594 2,611 5,205 Phillips - - 27 - - - - 2,278 2,278 4,383 4,103 8,486 Roy Huffco - 916 3,874 4,799 1,074 1,228 1,671 1,752 5,725 2,041 2,061 4,102 A.R.C.O. (E. Kalimantan) - - - - - 57 885 894 1,836 788 713 1,501 Mobil 011 - - - - - - 484 1,282 1,766 1,606 2,101 -3,707 I Total Onshore 394 9 98, 99,584 997 395 2 10 5 203 Offshore PT I.A.P.C.O. 13,649 19,785 15,254 34,402 10,958 10,933 9,855 9,725 41,471 8,688 7,295 15,983 A.R.C.O. (Java Sea) 23,357 32,661 28,582 44,432 11,445 11,161 10,633 10,610 43,849 9,436 9,659 19,095 Union Oil 13,292 18,508 20,942 27,989 7,222 7,209 7,340 7,658 29,429 7,306 7,152 14,458 Japex /c 13,292 18,508 18,128 19,425 4,869 8,538 15,836 16,104 45,347 15,426 15,318 30,744 Total Indonesia - 825 6,909 28,784 19,485 18,017 10,702 10,675 58,879 10,311 10,274 20,585 Cities Service - - Ill 914 214 201 195 179 789 164 154 318 Total Offshore 6 90, 89, I, 51 59 5 5 219 49,852 1 Crude Oil Production 4 5 4 55,36 1 1543 15 1 1 151,257 304,25 Percentage 100.0 100.0 100.0 100.0 100.0 100.0 Pertainna/Lemingas 7.8 8.1 6.9 5.7 5.0 5.2 Contracts of work 76.8 69.4 66.4 58.5 50.0 48.6 Production sharing 23.2 22.5 26.7 35.8 45.0 46.2 AvLrage daily production 1 38 1,i35 1 135 519 I 1, 1700 6 l68 /a Contracts of work. /b Since Jainuary 1977: Redco; since May 1978: Asamera (S. Sumatera). /c Since June 1977: Inpex (includes 50% of Total Indonesia production). Sorce: Ministry of Mines. m : on INDONESIA Petroleum Products - Supply and Demand, 1969-76 (bbl million) 1969 1970 1971 1972 1973 1974 1975 1976 Production of crude 270.9 311.6 325.6 395.6 488.5 501.8 476.9 550.3 Crude imports 0.2 0.8 2.8 2.7 1.9 2.7 2.6 7.7 Subtotal 271.1 312.4 328.4 398.3 490.4 504.5 479.5 558.0 Crude exports 195.7 228.1 239.6 299.1 369.5 378.9 363.1 449.1 Crude available for refineries 75.4 84.3 88.8 96.2 120.9 125.6 116.4 108.9 Changes in crude stocks (decrease = -) - 0.7 0.6 - 1.2 - 4.3 1.6 0.7 2.9 - 4.8 Refinery inputs 76.1 83.7 90.0 100.5 119.3 124.9 113.4 113.7 Refinery consumption 3.7 4.9 7.6 7.7 8.1 5.8 4.3 3.9 Refinery output 72.4 78.8 82.4 92.8 111.2 119.1 109.1 1)9.8 Export of refined products 19.0 25.3 34.0 41.2 58.3 67.4 62.2 60.6 Processing deals - - - - 3.4 26.4 29.7 28.9 Waxy residues 17.0 23.8 32.5 39.7 53.4 39.3 30.7 29.7 Bunker fuel, avtur, etc. 1.5 1.5 1.5 1.5 1.5 1.7 1.8 2.0 Available for domestic consumption 53.4 53.5 48.4 51.6 52.9 51.7 46.9 49.2 Imports of products 3.0 2.1 4.2 8.6 12.8 12.6 15.0 26.4 Total supply 56.4 55.6 52.6 60.2 65.7 64.3 61.9 75.6 Domestic consumption 36.9 39.3 43.9 50.1 60.3 69.6 78.8 88.9 Changes in refined stocks 19.5 16.3 8.7 10.1 5.4 - 5.3 -16.9 -13.3 Source: Migas. M oc -219 - ANNKX I-e-c 8.7 INDONESIA Døemt-t ie Sa les >f _Pgeroleum Iroducts, 1971-76 (9 0 barrels) Yearly growth rate, 1971-76 1971 1972 1973 1974 19/5 1976 (71) AviaLion gas 144 118 123 139 139 143 0 Aviation turbu 961 1,2100 1,6')8 2,15() 2,579 2,758 23.5 Prem ium gase i i nu 100 2,01 35 9 491> 661 706 47.8 Regullitr gasol inu 19,409 10,779 11,757 12,787 14,284 15,606 8.5 Verosené 18,927 20,697 23,146 26,769 30,623 33,259 12.0 Motor diesel 6,8ý5 9,027 11,838 14,524 18,023 22,749 26.9 Industrial diesel 2,364 2,676 3,4ý8 4,022 4,673 5,429 18.1 Fuel oil 4,P95 5,370 7,924 8,755 7,844 8,222 14.9 Total 43,895 50,077 60,293 69,642 78,826 88,872 15.1 Source: Migas, (Directorate of Mining and Gas). - 220 - ANNEX Table 8.8 INDONESIA Imports and Consumption of Petroleum Products, 1971-76 1971 1972 19'73 1974 1975 1976 Kerosene Imports (million bbl) 4.2 5.0 2.9 5.8 7.1 11.6 Consumption (million bbl) 18.9 20.7 23.1 26.8 30.6 33.3 Imports/consumption (%) 22.2 24.2 12.5 21.6 23.2 34.8 All Products Imports (million bbl) 4.2 8.6 12.8 12.6 15.0 26.4 Consumption (million bbl) 43.9 50.1 60.3 69.6 78.8 88.9 Imports/consumption (%) 9.6 17.2 21.2 18.1 19.0 29.7 Source: Migas. - 221 - ANNEX Table 8.9 INDONESIA Kerosene Consumption, 1970 and 1976 1 9 7 0 1 9 7 6 Avg annual growth Total (%) Per capita Total (%) Per capita rate (%) per capita (m1n 1) (1/month) (m1n 1) (1/month) consumption Java Rural 1,291 44.1 1.74 2,190 45.0 2.64 7.2 Urban 791 27.0 4.86 1,276 26.2 6.98 6.3 Total 21082 71.1 2.26 3$466 71.2 3.42 7.1 Other Islands Rural 605 20.6 1.43 956 19.6 1.96 5.4 Urban 242 8.3 2.99 447 9.2 4.12 5.5 Total 847 28.9 1.63 1,403 28.8 2.35 6.3 Indonesia Rural 1,896 64.7 1.63 3,146 64.6 2.39 6.6 Urban 1,033 35.3 4.31 1,723 35.4 5.94 5.5 Total 2$929 100.0 2.04 4)869 100.0 3.03 6.9 Source: Migas, (Directorate of Mining and Gas). INDONESIA Public Highway Network 1977 % of total: Total National Provincial District Area Population length (%) highways (%) roads (%) roads (%) (km) Location Java & Madura 7 63 35,340 36 2,007 18 7,925 29 25,408 42 Sumatera 25 18 32,470 33 3,548 31 10,791 39 18,131 30 Kalimantan 28 4 6,026 6 1,484 13 2,047 8 2,495 4 Sulawesi 10 7 15,310 15 2,070 18 3,659 13 9,581 16 Irian Jaya 22 1 1,029 1 - - 115 - 914 1 Other Islands 8 7 9,488 9 2,081 18 3,022 11 4,385 7 Total 100 100 99,781 100 11,308 100 27,559 100 60,914 100 Type of Surface Paved 32,288 32 7,646 68 14,861 54 9,781 16 Gravel 21,846 22 2,234 20 6,093 22 13,519 22 Earth 19,652 20 1,428 12 6,605 24 11,619 19 Unspecified 25,995 26 - - - - 25,995 43 Total 99,781 100 11,308 100 27P559 100 .60914 100 Source: Directorate General of Highways. Oq ?0 - 223 - ANNEX Table 8.11 INDONESIA Railway Traffic Data, 1971-77 1971 1972 1973 1974 1975 1976 1977 Passengers Passengers (million) 50.9 40.1 27.0 25.9 21.8 19.9 20.6 Passengers (million pass-km) 3.623 3.352 3.059 3.467 3.409 3.300 3.836 Average trip (km) 71.2 83.6 113.3 133.9 156.4 165.8 186.2 Freight Freight (million tons) 4.0 4.6 4.9 4.6 3.9 3.3 3.6 Freight (million ton/km) 949 1.038 1.129 1.118 865 706 879 Average haul (km) 237.2 225.6 230.4 243.9 222 216 240.5 Source: PJKA. - 224 - ANNEX Table 8.12 INDONESIA Motor Vehicle Registration, 190/-7b Year Cars /a Trucks Buses /b Motorcycles Total 1967 186,109 92,298 18,654 284,578 581,639 1968 201,743 93,417 19,610 308,404 623,174 1969 218,866 94,065 19,367 368,724 701,022 1970 238,924 102,265 23,541 440,005 804,735 1971 259,282 115,082 22,797 528,079 925,240 1972 277,210 131,175 26,488 615,220 1,050,093 1973 306,713 143,252 30,026 714,333 1,194,334 1974 339,181 167,246 31,510 948,778 1,485,715 1975 383,061 196,416 35,100 1,191,771 1,806,351 1976 420,488 222,310 39,840 1,417,228 2,099,866 % Average Annual Growth 1967-76 9.4 10.3 8.8 19.5 15.4 1967-73 8.4 7.6 8.4 16.6 12.8 1973-76 11.1 15.8 9.9 25.6 20.7 /a Includes taxis and jeeps (four-wheel drive). /b Includes microbuses. Source: Central Bureau of Statistics. - 225 - ANNEX Table 9.1 INDONESIA Cost of Living Index in Jakarta Index: September 1966 - 100 End of Food Change Change period stuffs (%) Housing Clothing Other General (%) 1970 612 +1.3 871 426 750 626 +8.9 1971 626 +2.2 879 437 777 642 +2.6 1972 905 +44.6 892 435 805 807 +25.7 1973 1,162 +28.4 1,025 574 1,021 1,028 +27.4 1974 +32.2 +33.3 Qtr 1 1,356 +16.7 1,194 632 1,166 1,188 +15.6 Qtr II 1,380 +1.8 1,225 678 1,370 1,251 +5.3 Qtr III 1,407 +2.0 1,236 730 1,406 1,282 +2.5 Qtr IV 1,536 +9.2 1,258 765 1,442 1,370 +6.9 1975 +23.4 +19.7 Qtr I 1,615 +5.1 1,323 772 1,472 1,427 +4.2 Qtr II 1,632 +1.0 1,546 780 1,529 1,465 +2.7 Qtr III 1,760 +7.8 1,591 808 1,524 1,545 +5.5 Qtr IV 1,896 +7.7 1,665 836 1,561 1,640 +6.1 1976 +13.2 +14.2 Qtr 1 1,986 +4.7 1,695 846 1,635 1,709 +4.2 Qtr II 2,052 +3.3 1,857 885 1,708 1,779 +4.1 Qtr III 2,150 +4.8 1,997 930 1,800 1,870 +5.1 Qtr IV 2,146 -0.2 2,057 934 1,800 1,873 +0.2 1977 +12.4 +11.8 Qtr I 2,199 +2.5 2,144 944 1,826 1,916 +2.3 Qtr II 2,251 +2.3 2,181 959 1,890 1,963 +2.4 Qtr III 2,342 +4.0 2,245 997 1,959 2,039 +3.9 Qtr IV 2,412 +3.0 2,326 1,002 2,001 2,094 +2.7 1978 Qtr I 2,432 +0.8 2,356 1,005 2,008 2,110 +0.7 Qtr II 2,419 -0.6 2,381 1,017 2,028 2,109 - January 2,413 - 2,331 1,002 2,007 2,096 +0.1 February 2,413 - 2,352 1,002 2,008 2,098 +0.1 March 2,432 +0.8 2,356 1,005 2,008 2,110 +0.6 April 2,493 +2.5 2,356 1,015 2,015 2,147 +1.8 May 2,470 -0.9 2,372 1,017 2,020 2,137 -0.5 June 2,419 -2.1 2,381 1,017 2,028 2,109 -1.3 July 2,448 +1.2 2,381 1,017 2,116 2,143 +1.6 August 2,482 +1.4 2,381 1,035 2,137 2,170 +1.3 N.B.: Indices in this table referred to end-quarter or end-year position, therefore they differed from average year indices used in the text. Source: Central Bureau of Statistics. - 226 - ANNEX Table 9.2 INDONESIA Price Index of Nine Essential Commodities /a in Selected Cities (Index: Jakarta, October 1976 = 100) End of Ujung period Jakarta Surabaya Jogjakarta Medan Padang Palembang Banjarmasin Pandang 1970 562 596 581 686 635 619 591 635 1971 535 592 585 641 648 580 563 546 1972 948 1,013 939 851 782 1,080 951 939 1973 1,050 1,129 1,044 1,515 1,459 1,453 1,404 1,072 1974 1,184 1,291 1,199 1,448 1,359 1,315 1,321 1,334 1975 1,482 1,517 1,712 1,736 1,674 1,549 1,390 1,469 1976 1,505 1,809 1,775 1,734 1,700 1,749 1,590 1,547 1977 1st qtr 1,520 1,661 1,447 1,627 1,821 1,797 1,692 1,580 2nd qtr 1,525 1,627 1,458 1,729 1,724 1,799 1,732 1,473 3rd qtr 1,523 1,875 1,611 1,769 1,704' 1,804 1,610 1,476 4th qtr 1,570 1,926 1,719 1,873 1,965 1,880 1,709 1,557 1978 1st qtr 1,587 1,861 1,580 1,713 2,005 2,004 1,730 1,607 2nd qtr 1,575 1,794 1,592 1,820 1,773 1,928 1,736 1,584 /a Rice, fish, cooking oil, sugar, kerosene, soap, textile, batik. Source: BPS. - 227 - ANNEX Table 9.3 INDONESIA Wholesale Price Indices in Indonesia (1971 = 100) 1971 1972 1973 1974 1975 1976 1977 Agriculture 100 118 159 218 256 321 392 Food crops 100 126 162 194 230 296 343 Commercial crops 100 91 148 225 182 265 411 Livestock 100 118 156 218 255 293 349 Mining & quarrying 100 113 125 164 195 210 237 Manufacturing 100 110 154 189 202 238 265 Imports 100 110 140 184 200 215 225 Exports 100 119 179 377 368 393 447 Nonoil exports 100 105 166 219 182 226 290 General index excluding exports 100 112 151 196 217 256 292 General index 100 114 157 232 247 283 323 Source: Indikator Ekonomi (BPS). - 228 - ANNEX Table 9.4 INDONESIA Annual Retail Prices of Six Basic Foodcrops, 1952-76 Jakarta markets Rural markets Rice Wheat Corn Cassava Sweet Cheap Quality Flour Mixed & Shelled Roots Potatoes Soybeans ---------------------------- (Rp per kg) -- -- - - - 1952 2.23 3.17 1.42 0.51 0.49 2.35 1953 2.25 2.92 0.93 0.35 0.37 2.15 1954 2.24 3.29 0.79 0.29 0.34 2.62 1955 2.64 4.30 1.48 0.38 0.43 3.05 1956 3.57 3.99 1.95 0.53 0.51 3.94 1957 4.43 5.01 1.82 0.50 0.53 4.12 1958 7.42 8.90 2.60 0.75 0.79 5.06 1958 6.63 14.55 2.86 0.67 0.75 5.92 1960 7.62 11.08 3.70 0.88 1.03 10.47 1961 12.63 11.37 6.05 1.90 2.18 12.38 1962 38.10 36.72 17.92 6.98 6.97 32.01 1963 76.28 116.94 39.80 11.20 11.66 70.05 1964 202.08 430.61 79.20 24.50 24.26 136.29 1965 726.04 1,661.84 267.45 58.95 71.62 509.18 1966 5.96 18.08 2.66 1.22 1.34 5.79 1967 16.64 24.78 7.26 2.84 2.96 16.82 1968 48.13 45.58 19.11 7.26 7.40 38.09 1969 38.26 44.72 20.17 6.28 6.81 53.18 1970 43.47 45.21 19.60 8.08 8.52 52.72 1971 39.80 55.35 20.44 7.58 8.61 58.80 1972 45.90 65.80 27.32 9.80 10.69 65.68 1973 71.34 83.53 35.62 16.85 18.85 101.83 1974 75.45 81.94 46.73 13.46 15.58 128.07 1975 93.49 100.23 59.91 17.55 20.33 164.79 1976 116.18 128.30 76.87 28.02 30.02 176.36 Source: BPS. INDONESIA Price of Rice la in Selected Cities (Rp/kg) Ujung Jakarta Bandung Semarang Surabaya Medan Palembang Pontianek Padang Menado Matoram 1970 Dec. 46 46 47 41 50 44 51 41 50 32 1971 Dec. 46 43 45 44 49 37 48 41 49 37 1972 Dec. 82 80 85 79 61 58 93 56 76 59 1973 Dec. 84 85 81 75 116 120 127 75 119 74 1974 Dec. 91 88 88 90 108 101 116 100 120 75 1975 Dec. 126 128 122 125 133 122 135 108 127 98 1976 June 115 118 119 112 128 133 138 115 128 107 Dec. 123 125 124 129 135 139 140 123 140 126 1977 June 126 126 120 123 135 142 140 113 139 110 Dec. 134 134 132 133 145 147 143 127 145 126 1978 June 128 124 125 128 134 152 145 125 150 118 /a Medium quality. Source: BULOG. Mb~ - 230 - ANNEX Table 9.6 INDONESIA Domestic Price of Petroleum Products, 1972-78 (Rp/liter) 1972 1973 1974 1975 1976 1977 1978 Aviation gas 35 40 50 62 70 70 70 Aviation turbo 30 40 50 62 70 70 70 Premium gasoline 40 45 55 67 90 90 90 Regular gasoline 35 41 46 57 70 70 70 Kerosene 10 11.50 13 16 18 18 18 Motor diesel 14 16 19 22 25 25 25 Industrial diesel 8.50 9 13 19 22 22 22 Fuel oil 6.50 7.50 12 19 22 22 22 Source: Migas. - 231 - ANNEX Table 10.1 Approved Foreign Investment /a by Sector, 1967-77 (US$ million) Total Total Seccor 1967-73 1974 1975 1976 1977 1974-77 1967-77 Agriculture 101.4 2.6 1.0 8.2 41.1 52.9 154.3 Forestry 430.4 62.3 17.2 36.9 30.3 146.7 577.1 Fisheries 25.4 19.3 13.7 5.8 4.9 43.7 69.1 Mining & quarrying 652.3 69.0 507.2 3.6 200.0 779.8 1,432.1 Manufacturing 1,166.1 927.7 1,159.5 348.2 380.2 2,815.6 3,981.7 Food 98.1 33.9 23.5 67.6 7.7 132.7 230.8 Textiles & leather 542.7 358.8 31.2 24.2 92.0 506.2 1,048.9 Wood & wood products 8.1 10.0 21.9 5.5 - 37.4 45.5 Paper & paper products 9.2 1.0 18.5 66.2 9.7 95.4 104.6 Chemical & rubber 183.9 76.1 60.4 35.7 78.2 250.4 434.3 Nonmetallic minerals 101.1 133.5 99.6 72.0 99.0 404.1 525.2 Ferrous metals 55.7 246.0 875.6 11.9 18.3 1,151.8 1,207.5 Metal products 143.3 64.9 28.8 65.0 75.3 234.0 377.3 Others 4.3 3.4 - - - 3.4 7.7 Construction 49.0 11.8 10.4 1.3 3.4 26.9 75.9 Trade & hotels 121.5 43.0 21.3 14.2 0.6 79.1 200.6 Wholesale trade 11.6 - - -0.7 - 0.7 12.3 Hotels 109.9 43.0 21.3 13.5 0.6 78.4 188.3 Transport & communication 29.5 3.0 20.3 4.0 5.0 32.3 61.8 Transport 23.4 3.0 16.9 4.0 - 23.9 47.3 Communication 6.1 - 3.4 - 5.0 8.4 14.5 Real estate & business services 101.4 122.2 7.5 27.3 6.0 163.0 264.4 Other services 17.0 - - - - - 17.0 Total 2)698.3 1,260.9 1,757.9 449.4 671.5 4,139.7 6,838.0 /a Intended capital investment. Amounts represent original approval plus approved expansion minus cancellations. Source: Investment Board. - 232 - ANNEX Table 10.2 INDONESIA Approved Domestic Investment ja uy sector, 1967-77 (Rp billion) Total Total Sector 1967-73 1974 1975 1976 1977 1974-77 1967-77 Agriculture, fisheries & livestock 61.7 8.6 19.2 41.7 8.4 78.0 139.7 Forestry 139.4 32.1 7.3 5.1 60.4 104.9 244.3 Mining 47.6 2.4 - - - 2.4 50.0 Manufacturing 755.4 170.4 194.4 179.3 351.4 895.5 1,650.9 Textile 301.4 65.3 33.8 32.4 71.1 202.6 504.0 Chemicals 106.4 21.0 51.4 71.0 85.9 229.3 335.7 Electric manufacturing 19.9 2.1 2.2 - 10.3 14.6 34.5 Other manufacturing 327.7 82.0 107.0 75.9 184.1 449.0 776.7 Construction 14.2 - - - - - 14.2 Hotel 71.1 2.3 1.4 - 9.6 13.2 84.3 Real estate 77.6 - 15.3 17.5 36.1 68.9 146.5 Others 89.0 14.5 8.3 35.5 23.3 81.6 170.6 Total 1,256.0 230.3 245.9 279.1 489.2 1,244.5 2,500.5 /a Intended capital investment. Figures represent original approvals plus approved expansions minus cancellations. Source: Investment Board. - 233 - QUANTITATIVE PROJECTIONS APPENDIX Table No- Table Headings Population 1.1 Population Projections 1976-2001 1.2 Population Projections 1976-2001 (Attachment) 1.3 Labor Force Projections 1976-2001 National Accounts 2.1 Basic Economic Indicators I 2.2 Basic Economic Indicators II International Trade and Balance of Payments 3.1 Exports 1973/74-1990/91 3.2 Imports, 1973/74-1990/91 3.3 Projected Import Capacity 1978/79-1990/91 3.4 Projected Import Capacity 1978/79-1990/91-(Attachment) 3.5 Exports and Imports ,Volume Growth Rates 1973/74-1990/91 3.6 Balance of Payments, 1973/74-1990/91 3.7 Projected Foreign Exchange Availability and Requirement, 1978/79-1990/91 3.8 Summary Alternative Foreign Exchange Availability and Requirement Projections External Debt 4.1 Borrowing Program and Attachment 4.2 Service Payments, Commitments, Disbursements and Outstanding Amounts of External Public Debt 4.3 Projected Disbursements, Net Resource Transfers and Debt Service 4.4 Summary: Commitments, Disbursements, Net Resource Transfers, Debt Service 4.5 Projected External Debt Outstanding 1973-90 Public Finance 5.1 Public Sector Resources, 1976/77-1990/91 5.2 Financing of Public Sector 5.3 Alternative Oil Revenue Projections, Repelita III, 1979/80-1983/84 5.4 Non-Oil Current Revenues, Current Expenditures and Public Savings, 1974/75-1990/91, Current Prices 5.5 Non-Oil Current Revenues, Current Expenditures and Public Savings, 1974/75-1990/91, As Percentage of GNP - 234 - APPENDIX Table 1.1 INDONESIA Population Projections /a 1976-2001 ('000) 1 9 7 6 1 9 8 1 1 9 8 6 1 9 9 1 1 9 9 6 2 0 0 1 Age group Males Females Total Males Females Total Males Females Total Males Females Total Males Females Total Males Females Total Java 0-4 5,955 5,824 11,779 6,185 6,025 12,210 6,437 6,258 12,695 6,562 6,372 12,934 6,465 6,267 12,732 6,208 6,010 12,218 5-9 5,699 5,723 11,422 5,627 5,506 11,133 5,893 5,747 11,640 6,176 6,016 12,192 6,337 6,169 12,506 6,282 6,106 12,388 10-14 5,260 5,196 10,456 5,597 5,614 11,211 5,539 5,416 10,955 5,812 5,667 11,479 6,101 5,945 12,046 6,272 6,109 12,381 15-19 4,500 4,460 8,960 5,163 5,094 10,257 5,505 5,518 11,023 5,458 5,336 10,794 5,737 5,595 11,332 6,033 5,883 11,916 20-24 3,637 3,733 7,370 4,381 4,346 8,727 5,040 4,976 10,016 5,388 5,407 10,795 5,354 5,245 10,599 5,641 5,514 11,155 25-44 9,688 10,412 20,100 10,584 11,384 21,968 12,138 12,693 24,831 14,520 14,833 29,353 17,217 17,315 34,532 18,923 18,848 37,771 45-54 3,338 3,497 6,835 3,854 4,016 7,870 4,234 4,571 8,805 4,161 4,652 8,813 4,025 4,566 8,591 4,987 5,449 10,436 55-64 1,896 2,235 4,131 2,269 2,565 4,834 2,663 2,947 5,610 3,119 3,424 6,543 3,465 3,940 7,405 3,444 4,045 7,489 65+ 1,068 1,480 2,548 1,276 1,753 3,029 1,559 2,097 3,656 1,902 2,469 4,371 2,296 2,921 5,217 2,774 3,474 6,248 Total 41.041 42,560 83.601 4493 46.303 91,23 49.008 5022 99.231 53.098 5417 107.274 5699 57,963 114,960 6056 61.438 122.002 Other Islands 0-4 3,934 3,852 7,786 4,436 4,330 8,766 5,006 4,872 9,878 5,582 5,421 11,003 6,092 5,905 11,997 6,555 6,346 12,902 5-9 3,438 3,438 6,876 3,699 3,626 7,325 4,210 4,112 8,322 4,795 4,674 9,469 5,390 5,249 10,639 5,919 5,754 11,673 10-14 3,056 3,051 6,107 3,373 3,368 6,741 3,637 3,562 7,199 4,150 4,052 8,202 4,737 4,619 9,356 5,334 5,197 10,531 15-19 2,608 2,521 5,129 2,996 2,987 5,983 3,314 3,306 6,620 3.582 3,507 7,089 4,096 4,001 8,097 4,684 4,570 9,254 20-24 2,205 2,261 4,466 2,535 2,452 4,987 2,921 2,914 5,835 3,241 3,238 6,479 3,515 3,447 6,962 4,028 3,943 7,971 25-44 5,409 5,197 10,607 6,317 6,192 12,509 7,240 7,157 14,397 8,612 8,650 17,260 10,158 10,174 20,332 11,471 11,385 22,856 45-54 1,539 1,646 3,185 1,728 1,797 3,525 2,128 2,084 4,212 2,353 2,217 4,570 2,449 2,447 4,896 3,080 3,247 6,326 55-64 1,005 1,107 2,112 1,105 1,244 2,349 1,218 1,378 2,596 1,390 1,525 2,914 1,745 1,796 3,541 1,949 1,929 3,878 65+ 652 785 1,437 725 889 1,614 837 1,033 1,870 944 1,196 2,140 1,084 1,378 2,462 1,260 1,580 2,840 Total 23.846 2385 47,704 26,914 26,885 53,799 30.511 30,418 60,929 34,649 34,480 69,128 3926 39,016 78,282 44.280 43.951 88,231 Indonesia 0-4 9,889 9,676 19,565 10,621 10,355 20,976 11,443 11,130 22,573 12,144 11,793 23,937 12,557 12,172 24,729 12,763 12,356 25,119 5-9 9,137 9,161 18,298 9,326 9,131 18,457 10,103 9,859 19,962 10,971 10,690 21,661 11,727 11,418 23,145 12,201 11,860 24,061 10-14 8,316 8,247 16,563 8,970 8,982 17,952 9,176 8,978 18,154 9,962 9,719 19,681 10,838 10,564 21,402 11,606 11,306 22,912 15-19 7,108 6,981 14,089 8,159 8,081 16,240 8,819 8,824 17,643 9,040 8,843 17,883 9,833 9,596 19,429 10,716 10,453 21,170 20-24 5,642 5,994 11,836 6,916 6,798 13,714 7,961 7,890 15,851 8,629 8,645 17,274 8,869 8,692 17,561 9,669 9,457 19,126 25-44 15,098 15,609 30,707 16,901 17,577 34,478 19,378 19,850 39,228 23,132 23,483 46,613 27,375 27,489 54,864 30,394 30,233 60,627 45-54 4,877 5,143 10,020 5,582 5,813 11,395 6,362 6,655 13,017 6,514 6,869 13,383 6,474 7,013 13,487 8,067 8,696 16,763 55-64 2,901 3,342 6,243 3,374 3,809 7,183 3,881 4,325 8,206 4,509 4,949 9,457 5,210 5,736 10,946 5,393 5,974 11,367 65+ 1,720 2,265 3,985 2,001 2,642 4,643 2,396 3,130 5,526 2,846 3,665 6,511 3,380 4,299 7,680 4,033 5,054 9,087 Total 64.887 66,418 131.305 71,85 73.188 1 79,519 80.641 160.160 87,747 88,656 176,402 96.263 96.979 193,242 104,844 105.389 210,233 Alternative Projections A Java 41,041 42,560 83,601 45,265 46,618 91,884 49,957 51,169 101,126 54,696 55,771 110,467 59,279 60,234 119,513 63,571 64,421 127,992 Outer Islds 23,846 23,858 47,704 27,140 27,090 54,229 31,173 31,050 62,223 35,844 35,635 71,480 41,007 40,699 81,706 46,674 46,258 92,932 Indonesia 64,887 66,418 131,305 7 73.708 146,113 81.130 82219 163.349 90.540 91,40 181.947 10286 100.933 201,219 110,245 110,679 220,94 / The above population projections are based on the assumption of a moderate decline in mortality. lb The alternative population projections are based on the assumption of a rapid decline in mortality. Note: In both population projections fertility rates in Java are projected to decline linearly by 30% between 1971 and 1986 and by 50% between 1987 and 2001, and in Other Islands by 30% between 1971 and 2001. The projections further assume no migration between Java and Outer Islands and sex ratio at birth as 105 male births to 100 female births. INDONESIA -P.gonlation Projections. 1976-2001 - Attachment Basic Assumptions and Population Indicators Java Other Islands 1971-76 1976-81 1981-86 1986-91 1991-96 1996-2001 1971-76 1976-81 1981-86 1986-91 1991-96 1996-2001 Total fertility rate 4.750 4.253 3.780 3.360 2.987 2.655 6.045 5.662 5.341 5.021 4.720 4.436 Gross reproduction rate 2.317 2.075 1.844 1.639 1.457 1.295 2.949 2.772 2.605 2.449 2.302 2.164 Net reproduction rate /a 1.622 1.516 1.402 1.294 1.191 1.093 2.007 1.971 1.931 1.905 -1.873 1.819 Net reproduction rate 1 1.622 1.578 1.507 1.383 1.267 1.158 2.007 2.054 2.082 2.059 1.995 1.929 Life expectancy at birth (years) La Females 47.50 50.00 52.50 55.00 57.50 60.00 46.25 48.75 51.25 54.38 57.50 60.00 Males 44.52 47.11 49.56 51.83 54.14 56.47 43.32 45.82 48.34 51.26 54.14 56.47 Life expectancy at birth (years) /b Females 47.50 52.50 57.50 60.00 62.50 65.00 46.25 51.25 56.25 60.00 62.50 65.00 Males 44.52 49.56 54.14 56.47 58.84 61.23 43.32 48.34 52.98 56.47 58.84 61.23 Infant mortality (per 1,000) /a Females 131.71 118.31 105.48 93.39 81.77 70.66 138.92 125.01 111.90 96.41 81.77 70.66 Males 155.37 139.42 124.53 111.36 98.57 86.21 163.51 147.40 131.98 114.65 98.57 86.21 Infant mortality (per 1,000) /b Females 131.71 105.48 81.77 70.66 60.04 49.94 138.92 111.90 87.58 70.66 60.04 49.94 Males 155.37 124.53 98.57 86.21 74.30 62.87 163.51 131.98 104.97 86.21 74.30 62.87 Birth rate (per 1,000) /aE 35.6 33.0 30.9 28.5 25.6 22.7 42.2 41.3 40.3 38.7 36.4 34.1 Birth rate (per 1,000) /b 35.6 33.0 30.7 28.2 25.3 22.4 42.2 41.2 40.0 38.2 35.8 33.7 Death rate (per 1,000) fa 17.5 15.5 14.1 12.9 11.8 10.8 19.4 17.3 15.4 13.4 11.6 10.2 Death rate (per 1,000) /b 17.5 14.0 11.5 10.5 9.5 8.7 19.4 15.6 12.5 10.4 9.1 7.9 Population increase (per 1,000) La 18.1 17.5 16.8 15.6 13.8 11.9 22.8 24.1 24.9 25.3 24.9 23.9 Population increase (per 1,000) /b 18.1 18.9 19.2 17.7 15.7 13.7 22.8 25.7 27.5 27.8 26.8 25.8 /a Assumption of moderate decline in mortality. A0 Assumption oF rapid decline in mortality. >~ - 236 - APPENDIX Table 1.3 INDONESIA Labor Force Projections, 1976-2001 Proportion of Labor Total Labor Force (million) Force to Population (%) Average Annual Growth Rate (%) Year Java Other Islands Indonesia Java Other Islands Indonesia Java Other Islands Indonesia MALES 1976 22.8 12.6 35.5 55.5 53.0 54.7 - - - 1981 25.4 14.2 39.6 56.5 52.9 55.1 2.1 2.4 2.2 1986 28.1 16.0 44.1 57.4 52.5 55.5 2.1 2.4 2.2 1991 30.9 18.0 48.9 58.2 51.4 55.7 1.9 2.4 2.1 1996 33.6 20.2 53.8 58.9 51.5 55.9 1.7 2.4 2.0 2001 36.4 22.8 59.2 60.0 51.5 56.4 1.6 2.4 1.9 FEMALES 1976 14.4 7.6 22.0 33.9 31.7 33.1 - - - 1981 15.8 8.5 24.3 34.1 31.4 33.1 1.8 2.2 2.0 1986 17.2 9.4 26.6 34.3 30.9 33.0 1.7 2.2 1.9 1991 18.5 10.5 29.0 34.2 30.3 32.7 1.5 2.1 1.7 1996 19.8 11.6 31.4 34.1 29.8 32.4 1.3 2.2 1.6 2001 21.1 13.0 34.1 34.3 29.6 32.3 1.3 2.3 1.6 T 0 TAL 1976 37.2 20.2 57.5 44.6 42.4 43.8 - - - 1981 41.2 22.7 63.9 45.1 42.2 44.0 2.0 2.3 2.1 1986 45.3 25.4 70.7 45.7 41.7 44.2 1.9 2.3 2.1 1991 49.4 28.4 77.8 46.0 41.1 44.1 1.7 2.3 1.9 1996 53.4 31.8 85.2 46.4 40.7 44.1 1.6 2.3 1.8 2001 57.5 35.8 93.3 47.1 40.6 44.4 1.5 2.4 1.8 Assumptions: (a) Population projections based on assumption of a moderate decline in mortality (see Table 1.1). (b) Labor force participation rates by age group are assumed to be identical for Java and Outer Islands (see attachment to this table). (c) Participation rates in the age group 20-64 are projected to remain unchanged between 1976 and 2001. (d) Participation rates in the age group 10-14 are projected to decline at a linear rate to zero by 2001. (e) Participation rates in the age group 15-19 and 65+ are projected to decline by 0.5% per year. INDONESIA Basic Economic Indicators I (Rp billion) Constant 1976 prices ACT U AL PR 0 JECTED 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1985 1990 GDP - - 12,837 13,7-36 14,387 15,494 16,622 17,702 18,853 20,079 21,384 22,774 24,254 27,509 37,693 Factor payments (net) /a -406 -611 -596 -432 -459 -488 -521 -555- -591 -629 -670 -759 -1,041 Terms of trade effect /b -1,016 364 11 0 -63 -213 -174 -162 -135 -113 -88 -21 159 GNP 12,431 13,125 13,791 15,062 16,163 17,214 18,332 19,524 20,793 22,145 23,584 26,750 36,649 GNY 11,415 13,489 13,802 15,062 16,100 17,001 18,158 19,362 20,658 22,032 23,496 26,729 36,808 Exports /c 3,258 3,377 3,048 3,430 3,801 3,,123 3,136 3,135 3,225 3,424 3,571 - 3,867 4,627 Imports /d 2,177 2,762 2,980 3,222- 3,252 2,857 2,959 3,067 3,235 3,357 3,489 3,913 4,994 Private consumption /e 8,273 9,108 9,813 10,491 10,860 13,860 14-924 16,055 17,204 13,334 19,564 22,348 30,89 - Government consumption /f 1,270 1,375 1,482 1,591 l-,845 GDI 2,213 2,638 3,023 3,205 3,368 3,576 3,752 3,956 4,170 4,373 4,608 5,227 7,161 GNS 1,871 3,006 2,506 2,980 3,395 3,141 3,234 3,307 3,454 3,698 3,932 4,381 5,912 GDI:GDP (%) 17.2 19.2 21.0 20.7 20.3 20.2 19.9 19.7 19.5 19.2 19.0 19.0 19.0 GNS:GNY (%) 16.4 22.3 18.2 19.8 21.1 18.5 17.8 17.1 16.7 16.8 15.7 16.4 16.1 Net foreign inflows:GNY (%) -3.0 .2.7 -3.7 -1.5 0.2 -2.6 -2.9 -3.4 -3.6 -3.1 -2.9 -3.2 -3.4 N.B. Import price index /f (1976=100) 60 83 93 100 110 117 126 135 143 152 162 182 233 Export price index Ja (1976=100) 42 92 94 100 108 109 119 128 137 147 158 181 241 /a Projected factor payments 1978-90 are equal to difference between GDP and GNP, which have been projected to grow at 6.5% p.a. /b Projected terms of trade effe6t 1978-90 based on exports, including oil on LNG and a net basis. /c Projected exports 1978-90 include oil and LNG on a net basis. - /d -Projected imports 1978-90 represent nonoil imports (including net NFS) only. fe Projected consumption 1978-90 residual. /f See footnote (d). L& See footnote (c). M z 0 - 238 - APPENDIX Table 2.2 INDONESIA Basic Economic Indicators II (Rp billion, constant 1976 prices) Growth rate 1973 1977 1983 (% p.a.) As % of As % of As % of 1973-77 1977-83 Total GDP Total GDP Total GDP GDP 6.7 6.5 12,837 100.0 16,622 100.0 24,254 100.0 Factor payments (net) 3.1 6.5 -406 -3.2 - 459 -2.8 - 670 -2.8 Terms of trade effect -1.016 -7.9 -63 -0.4 -88 -0.4 GNP 6.8 6.5 12,431 96.8 16,163 97.2 23.584 97.2 GNY 9.0 6.5 11,415 88.9 16,100 96.9 23,496 96.9 Exports 3.9 3.0/a 3,258 25.4 3,801 22.9 - - Imports 10.6 3.2/b 2,177 17.0 3,252 19.6 - - Resource gap - - 1,081 8.4 549 3.3 82/c 0.3 Consumption 7.4 7.5 9,543 74.3 12,705 76.4 19,564 80.7 GDI 11.1 5.4 2,213 17.2 3,368 20.3 4,608 19.0 GNS 16.1 2.5 1,871 14.6 3,395 20.4 3,932 16.2 /a Growth rate of exports (alternative A) including oil and LNG on a net basis. /b Growth rate of non-oil imports. /c Exports minus nonoil imports (including net NFS). - 239 -. APPENDIX Table 3.1 INDONESIA Exports, 1973/74-1990/91 (Us$ million) Actual Prolected 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1985/86 1990/91 1. Current Prices (US$ million) 1. Timber 720 615 527 885 854 941 1,149 1,339 1,574 1,797 2,127 2,959 5,357 2. li, ber 483 425 381 577 560 619 683 771 825 898 961 1,108 1,700 3. Palm oil 89 184 142 147 214 207 275 272 290 368 371 383 576 4. Coffee 79 92 112 330 630 435 369 339 345 352 398 512 825 5. Tea 31 50 50 64 131 87 86 86 91 97 104 118 170 6. Tobacco 46 36 40 41 82 72 79 87 94 104 116 141 194 7 Pepper 31 22 25 55 85 60 62 64 73 78 86 109 172 8. Other agriculture 174 199 195 248 270 290 297 308 340 265 402 495 741 9. Subtotal agriculture (1-8) 1,653 1,623 1,472 2,347 2,826 2,711 3,000 3,266 3,632 4,059 4,565 5,825 9,735 10. Tin 98 166 158 181 241 250 273 284 307 332 357 413 614 11. Copper 56 102 74 95 84 98 107 134 157 197 214 252 339 12. Bauxite, alumina, aluminum 21 28 25 7 10 10 10 11 60 147 245 282 538 13. Nicke8 37 35 103 179 268 324 352 378 679 995 14. Subtotal minerals (10-13) 175 296 257 320 370 461 569 697 848 1,028 1,194 1,626 2,486 15. Miscellaneous 77 114 144 196 283 369 473 598 762 973 1,234 1,997 6,346 16. Total non-oil exports(9+14+15) 1,905 2,033 1,873, 2,863 3,489 3,551 4,042 4,561 5,242 6,060 6,993 9,448 18,567 17. oil (net) 641 2,638 3,138 3,710 4,416 4,373 4,555 4,498 4,770 5,268 5,581 6,236 6,927 18. LNG (net) - - - - 78 268 400 600 638 800 1,000 1,118 1,428 19. Subtotal Oil & LNG (17+18) 641 2,638 3,138 3,710 4,494 4,641 4,955 5,098 5,408 6,068 6,581 7,354 8,355 20. Total exports (16+19) 2,546 4,671 5,011 6,573 7,983 8,192 8,997 9,659 10,650 12,128 13,574 16,802 26,922 11. Price Indices (1976/77 - 100) 1. Timber 82 88 82 100 106 110 128 142 159 173 195 246 384 2. Rubber 83 78 70 100 102 109 119 133 141 152 161 182 253 3. Palm oil 90 170 96 100 148 128 162 153 155 187 180 168 208 4. Coffee 36 38 34 100 145 113 93 83 82 81 89 108 150 5. Tea 67 98 82 100 218 136 132 128 134 140 146 160 210 6. Tobacco 69 72 91 100 104 129 141 152 165 129 196 235 308 7. Pepper 74 96 89 100 133 113 112 113 121 126 135 156 202 8. Other agriculture 69 65 66 100 112 113 112 113 121 126 135 156 202 9. Subtotal agriculture 75 82 72 100 119 113 121 127 137 148 161 192 279 10. Tin 67 104 107 100 145 145 145 154 166 177 189 214 276 11. Copper 108 111 95 100 97 98 107 134 157 197 214 252 339 12. Bauxite, alumina, aluminum 46 58 71 100 112 128 141 156 165 175 185 208 265 13. Nickel } 100 102 98 106 115 128 144 159 193 242 14. Subtotal minerals 71 99 99 100 125 120 123 133 148 167 181 208 248 15. Miscellaneous 46 80 71 100 110 117 125 132 140 149 158 177 226 16. Total non-oil exports 73 84 75 100 119 115 122 129 139 151 164 191 254 17. oil (net) 29 71 93 100 105 105 117 127 135 143 152 170 217 18. LNG (net) - - - 100 105 105 117 127 135 143 152 170 217 19. Subtotal Oil & LNG 29 71 93 100 105 105 117 127 135 143 152 170 217 20. Total exports 53 76 85 100 111 109 119 128 137 147 158 181 241 III. Constant 1976/77 Prices 1. Timber 881 698 639 885 803 855 898 943 990 1,039 1,091 1,203 1,395 2. Rubber 503 544 547 577 547 568 574 580 585 591 597 609 672 3. Palm oil 99 108 148 147 145 162 170 178 187 197 206 228 277 4. Coffee 221 241 327 330 433 385 397 409 421 434 447 474 550 5. Tea 46 51 61 64 60 64 65 67 68 69 71 74 81 6. Tobacco 67 50 44 41 79 56 56 57 57 58 59 60 63 7. Pepper 42 23 28 55 64 53 55 57 60 62 64 70 85 8. Other agriculture 251 254 239 248 241 257 265 273 281 290 298 317 367 9. Subtotal agriculture 2,190 1,969 2,033 2,347 2,372 2,400 2,480 2,564 2,649 2,740 2,833 3,035 3,490 10. Tin 147 160 147 181 166 172 188 184 185 188 189 193 287 11. Copper 52 92 78 95 87 100 100 100 100 100 100 100 100 12. Bauxite, alumina, aluminum 46 48 35 7 9 8 7 7 36 84 132 136 203 13. Nickel 37 34 105 169 233 253 244 239 352 411 14. Subtotal minerals 245 300 260 320 296 385 464 524 574 616 660 781 1,001 15. Miscellaneous 168 142 203 196 257 315 378 453 544 653 784 1,128 2,808 16. Total non-oil exports 2,603 2,411 2,496 2,863 2,925 3,100 3,322 3,541 3,767 4,009 4,274 4,944 7,299 17. oil (net) 2,210 3,715 3,374 3,710 4,206 4,165 3,893 3,542 3,533 3,684 3,672 3,668 3,192 18. LNG (net) - - - - 74 255 342 472 472 559 658 658 658 19. Subtotal Oil & LNG 2,210 3,715 3,374 3,710 4,280 4,420 4,235 4,014 4,005 4,243 4,330 4,326 3,850 20. Total exports 4,813 6,126 5,870 6,573 7,205 7,520 7,557 7,555 7,772 8,252 8,604 9,270 11,149 N.B.: Price indices reflect current World Bank Commodity Division Price Expectations. Volume projections reflect current trends and expectations of the authors of this report. INDONESIA Imports, 1973/74 - 1990/91 (USS millions) Actual po.ected /a 1973/74_1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1985/86 1990/91 A. Current Prices Rice 389 493 275 333 682 610 706 801 1,082 1,201 1,359 1,840 2,827 Other consumption goods 610 457 631 1,024 1,175 1,151 1,279 1,415 1,550 1,715 1,891 2,248 3,327 Intermediate goods 1,163 2,162 1,771 1,603 1,786 2,301 2,661 3,066 3,493 4,024 4,620 5,999 10,389 Capital goods 776 1,229 2,413 3,207 3,500 3,489 3,754 4,022 4,263 4,567 4,877 6,000 9,677 Total non-oil imports 2,938 4,341 5,090 6,167 7,144 7,551 8,400 9,304 10,388 11,507 12,747 16,087 26,220 Nonfactor services (net) 202 297 350 423 493 524 588 657 725 810 902 1,115 1,817 Imports + N.F.S. 3,140 4,638 5,440 6,590 7,637 8,075 8,988 9,961 11,113 12,317 13,649 17,202 28,037 B. Price Indices (1976 = 100) Rice 138 213 143 100 105 121 140 159 172 191 216 244 322 Other goods 69 86 99 100 110 117 125 133 140 149 158 177 226 Total non-oil imports 74 92 101 100 110 117 126 135 143 152 163 183 234 N.F.S. 69 86 99 100 110 117 125 133 140 149 158 177 226 Imports + N.F.S. 74 92 101 100 110 117 126 135 143 152 162 182 233 C. Constant 1976 Prices Rice 282 231 192 333 650 504 504 504 629 629 629 754 878 Other consumption goods 884 531 637 1,024 1,068 984 1,023 1,064 1,107 1,151 1,197 1,2'0 1,472 Intermediate goods 1,686 2,514 1,789 1,603 1,624 1,967 2,129 2,305 2,495 2,701 2,924 3,3'9 4,597 Capital goods 1,125 1,429 2,437 3,207 3,182 2,982 3,003 3,024 3,045 3,065 3,087 3,- ) 4,282 Total non-oil imports 3,977 4,705 5,055 6,167 6,524 6,437 6,659 6,897 7,276 7,546 7,837 8, 3 11,229 Nonfactor services (net) 273 323 347 423 448 448 470 494 518 544 571 f 0 804 Imports + N.F.S. 4,250 5,028 5,402 6,590 6,972 6,885 7,129 7,391 7,794 8,090 8,408 9,' 0 12,033 0 N.B. Imports + N.F.S. as % of CNP (current prices) 20.0 18.9 18.7 18.2 17.2 18.7 20.4 18.6 17.4 16.4 15.8 1 .7 14.6 /a Basic Assumptions: 1. Rice. Rice imports are projected at 2 million tons annually during 1978/79-1980/81, at 2.5 million tons during 1981/82-1983/84, at 3 million tons by 1985/86 and at 3.5 million tons by 1990/91. 2. Other Consumption Goods. Imports of other consumption goods are projected to grow in real terms by 4% p.a. between 1976/77 (1975/76- 1977/78 average) and 1983/84 and by 3% p.a. thereafter. 3. Intermediate Goods. The projection of intermediate goods imports assumes an elasticity of these imports to value added manufacturing of 0.55 between 1976/77 (1975/76-1977/78 average) and 1983/84, gradually declining thereafter to 0.35 by 1990/91. Value added manufacturing is projected to grow by 15% p.a. 4. Capital Goods. The projection of capital goods imports assumes that the share of capital goods imports to CDI will gradually decline from an average of 40% during 1975-77 (compared to 28% during 1973/74) to 30% by 1983/84 and to 25% by 1990/91. The share of CDI to CDP is projected to decline gradually from an average of 20.6% during 1975-77 to 19% by 1983/84 and to remain unchanged thereafter. CP is projected to grow at 6.5% p.a. 5. NFS (net). NFS (net) are projected to grow by 5% p.s. in real terms between 1976/77 (1975/76-1977/78 average) and 1990/91. INDONESIA Projected Import Capacity, 1978/79-1990/91 (US$ million) 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1. Import capacity A La 8,644 9,364 10,203 11,270 12,693 14,141 15,809 17,503 19,175 21,248 23,284 25,458 27,808 2. Import capacity B La 8,644 8,968 9,716 10,740 12,102 13,496 15,121 16,777 18,427 20,479 22,495 24,649 26,976 3. Required imports (incl. NFS) 8,075 8,988 9,961 11,113 12,317 13,649 15,322 17,202 18,967 20,915 23,060 25,427 28,037 4. Surplus/shortage capacity C (1-3) 569 376 242 157 376 492 487 301 208 333 224 21 -229 5. Surplus/shortage capacity D (2-3) 569 -20 -245 -373 -215 -153 -201 -425 -540 -436 -565 -778 -1,061 /a Line I shows import capacity in case of exports as projected in Table 3.1. .Line 2 shows import capacity in case of a 10% shortfall in net oil and LNG export earnings from 1979/80 onwards. In each case import capacity is equal to foreign exchange availability (see Table 3.7) minus increase in reserves required to maintain reserves at a level of three month's worth of imports + NFS at capacity level. As of end 1977/78, reserves stood at $2.2 billion. *. ' INDONESIA Projected Import Capacity 1978/79-1990/91 - Attachment (US$ million) Actual Projected Growth rates 1973/74 1976/77/a 1985/86 1990/91 73/74- 76/77-,a 85/86- 76/77,a 76/77/a 85/86 90/91 90/91 Current Prices Actual/Required imports 3,140 6,556 17,202 28,037 27.8 11.3 10.3 10.9 Import Capacity A 17,503 27,808 11.5 9.7 10.9 Import Capacity B 16,777 26,976 11.0 10.0 10.6 Price index (1976/77=100) 182/b 233/b Constant 1976 Prices Actual/Required imports 4,250 6,321 9,430 12,033 14.2 4.5 5.0 4.7 Import Capacity A 9,617 11,934 4.8 4.4 4.6 Import Capacity B 9,218 11,578 4.3 4.7 4.4 /a 1975/76 - 1977/78 average. /b Price index of imports at any capacity level assumed equal to price index of imports (Table 3.2). Note: Imports include N.F.S (net). LjZ 243 - APPENDIX Table 3.5 INDONESIA Exports and Imports - Volume Growth Rates,/a 1973/74-1990/91 Actual Projected 1973/74- 1976/77-/b 1985/86- 1976/77-/b 1976/77/b 1985/86 1990/91 1990/91 Exports Timber -4.2 5.0 3.0 4.3 Rubber 3.5 1.0 2.0 1.4 Palm oil 14.0 5.0 4.0 4.6 Coffee 18.0 3.0 3.0 3.0 Tea 10.3 2.0 2.0 2.0 Tobacco -6.6 1.0 1.0 1.0 Pepper 5.3 4.0 4.0 4.0 Other agriculture -1.1 3.0 3.0 3.0 Total agriculture 0.9 3.4 2.8 3.2 Total minerals 6.0 11.6 5.1 9.2 Miscellaneous 9.2 20.0 20.0 20.0 Total non-oil exports 2.0 6.7 8.1 7.2 Total oil & LNG (net) 19.7 1.1 -2.3 0.1 Total exports 10.8 3.9 3.8 3.9 Imports Consumption goods /e 3.7 5.0 3.0 4.3 Intermediate goods -0.3 8.2 6.3 7.5 Capital goods 37.8 1.6 4.8 2.7 Total non-oil imports 14.2 4.5 5.0 4.7 NFS (net) 14.1 5.0 5.0 5.0 Total Imports + NFS 14.2 4.5 5.0 4.7 /a Compound average. /b 1975/76-1977/78 average. /c Including rice. INDONESIA Balance of Payments, 1973/74-1990/91 (US$ million) Actuals Projected 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1985/86 1990/91 Exports A 2,546 4 5.011 6,573 7.983 8,192 8 9,659 10,650 12J12 13,574 16,* 802 2 Oil and LNG (net) 641 2,638 3,138 3,710 4,494 4,641 4,955 5,098 5,408 6,068 6,581 7,354 8,355 Non-oil 1,905 2,033 1,873 2,863 3,489 3,551 4,042 4,561 5,242 6,060 6,993 9,448 18,567 Imports + N.F.S. 3,140 4 5,440 6,590 7,637 8,075 8 9,961 11,113 12,317 13,649 17,202 0 Imports (non-oil) 2,938 4,341 5,090 6,167 7,144 7,551 8,400 9,304 10,388 11,507 12,747 16,087 26,220 N.F.S. 202 297 350 423 493 524 588 657 725 810 902 1,115 1,817 Resource gap (-) -594 33 -429 -17 346 117 9 -302 -463 -189 -75 -400 -1,115 Net resource transfers /a 875 1,308 1,789 1,278 689 413 547 754 887 921 929 1,124 1,474 Other /b 79 -1,350 -1,724 -260 -384 - - - - - - - - Change in reserves (- = increase) -350 9 364 -1,001 -651 -530 -556 -452 -424 -732 -854 -724 -359 Alternative Projections /c Exports B 8,192 8,502 9,149 10,109 11,521 12,916 16,067 26,087 Resource gap (-) 117 -486 -812 -1,004 -796 -733 -1,135 -1,950 Change in reserves (- = increase) -530 -60 58 117 -125 -196 11 477 /a On account of public sector medium- and long-term borrowing and grants, figures for 1973/74-1977/78 have been derived from IBRD external debt statistics and include estimated grant disbursements of $100 million during each year. /b Includes: factor services (net) other than interest on public sector MT & LT debt, private and short-term capital (net) and errors and omissions. /c Assuming 10% shortfall in net oil and LNG export earnings from 1979/80 onwards but same level of imports and net resource transfers. Note: Projections assume that resource transfers resulting from private investments (gross investment minus capital repatriation and profit remittances), private borrowing and short-term borrowing will, on a net basis, amount to zero. 0 ' INDONESIA Projected Foreign Exchange Availability and Requirement, 1978/79-1990/91 (US$ million) 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1. Exports A /a 8,192 8,997 9,659 10,650 12,128 13,574 15,202 16,802 18,463 20,289 22,295 24,500 26,922 2. Exports B /b 8,192 8,502 9,149 10,109 11,521 12,916 14,503 16,067 17,709 19,515 21,501 23,686 26,807 3. Net resource transfers LC 413 - 547 754 887 921 929 1,024 1,124 1,130 1,477 1,498 1,502 1,474 4. Foreign exchange avail- ability A (1+3) 8,605 9,544 10,413 11,537 13,049 14,503 16,226 17,926 19,593 21,766 23,793 26,002 28,396 5. Foreign exchange avail- ability B (2+3) 8,605 9,049 9,903 10,996 12,442 13,845 15,527 17,191 18,839 20,992 22,999 25,189 27,560 6. Minimum import (incl. net NFS) requirement /d 8,075 8,988 9,961 11,113 12,317 13,649 15,322 17,202 18,967 20,915 23,060 25,427 28,037 7. Increase in reserves A (4-6) 530 556 452 424 732 854 904 724 626 851 733 575 359 8. Increase in reserves B (5-6) 530 60 -58 -117 125 196 205 -1 -128 77 -61 -239 -477 9. Level of reserves A 2,7*30 3,286 3,738 4,162 4,894 5,748 6,652 7,376 8,002 8,853 9,586 10,161 10,520 10. Level of reserves B 2,730 2,790 2,732 615 740 36 3,141 3,130 3,002 3,079 3,018 2,779 2,302 11. Reserves A - months of imports /e 4.1 4.4 4.5 4.5 4.8 5.1 5.2 5.2 5.1 5.1 5.0 4.8 4.5 v 12. Reserves B - months of imports /e 4.1 3.7 3.3 2.8 2.7 2.6 2.5 2.2 1.9 1.8 2.6 1.3 1.0 13. Debt service ratio A 18.1 17.2 17.1 17.5 17.4 17.2 17.0 17.1 17.5 16.1 16.4 16.7 17.1 14. Debt service ratio B 18.1 18.1 18.1 18.4 18.3 18.1 17.8 17.9 18.2 16.7 17.1 17.3 17.6 /a For details see Tables 3.1. /b Total exports under the assumption of a 10% shortfall in net oil and LNG export earnings from 1979/80 onwards. /c For details of borrowing program see Table 4.1. /d For details see Table 3.2. /e Months of imports (ncl. net NFS) at minimum required level (line 6). 0'z INDONESIA Summary Alternative Foreign Exchange Availability and Requirement Projections (US$ million) Avg 1975/76-1977/78 1983/84 1985/86 1990/91 Growth Rates (Constant '76 Prices) Current Constant Current Constant Current Constant Current Constant 73/74- 76/77-/a 85/86- 76/77-La prices '76 prices prices '76 prices prices '76 prices prices '76 prices 76/77/a 85/86 90/91 90/91 1. Agricultural exports 2,215 2,215 4,565 2,833 5,825 3,035 9,735 3,490 0.9 3.4 2.8 3.2 2. Mineral exports 316 292 1,194 660 1,626 781 2,486 1,001 6.0 11.6 5.1 9.2 3. Miscellaneous exports 208 219 1,234 784 1,997 1,128 6,346 2,808 9.2 20.0 20.0 20.0 4. Non-oil exports - (1+2+3) 2,739 2,762 6,993 4,274 9,448 4,944 18,567 7,299 2.0 6.7 8.1 7.2 5. Oil & LNG exports - A Lb 3,781 3,788 6,581 4,330 7,354 4,326 8,355 3,850 19.7 1.5 -2.3 0.1 6. Oil & LNG exports - B Le 3,781 3,788 5,923 - 6,619 - 7,512 - - - - - 7. Total exports (4+5) 6,520 6,549 13,574 8,604 16,802 9,270 26,922 11,149 10.8 3.9 3.8 3.9 8. Total exports (4+6) 6,520 6,549 12,916 - 16,607 - 26,087 - - - - - 4 9. Net resource transfers /d 929 1,124 1,474 10. F.E. availability (7+9) 14,503 17,926 28,396 11. F.E. availability (8+9) 13,845 17,191 27,560 12. Minimum import (incl. net NFS) requirement /e 6,556 6,321 13,649 8,408 17,202 9,430 28,037 12,033 14.2 4.5 5.0 4.7 13. Debt service 2,339 2,871 4,590 14. Ratio (13:7) 17.2 17.1 17.1 15. Ratio (13:8) 18.1 17.9 17.6 /a 1975/76-1977/78 average. b Assuming oil and LNG exports as projected in Table 3.1. Te Assuming a 10% shortfall in net oil and LNG exort earningsfrom 1979/80 onwards. /d Transfers (fiscal year) resulting from grants and borrowing program. /e See Table 3.2. M 00 - 247 - APPENDIX Table 4.1 INDONESIA Borrowing Program (US$ millions) Subtotal Total /c Other /b concessional and Total loans plus Year IGGI Mult. ODA semi-concessional Commercial /c loans Grants /d grants (1) (2) (3) (4) (5) (6) (7) 1978 /a 775 875 1,650 750 2,400 100 2,500 1979 875 950 1,825 850 2,675 100 2,775 1980 950 1,025 1,975 950 2,925 100 3,025 1981 1,050 1,100 2,150 1,075 3,225 125 3,350 1982 1,150 1,200 2,350 1,200 3,550 125 3,675 1983 1,250 1,300 2,550 1,350 3,900 125 4,025 1984 1,325 1,400 2,725 1,525 4,250 150 4,400 1985 1,400 1,525 2,925 1,700 4,625 150 4,775 1986 1,475 1,625 3,100 1,900 5,000 150 5,150 1987 1,550 1,750 3,300 2,100 5,400 175 5,575 1988 1,650 1,875 3,525 2,350 5,875 175 6,050 1989 1,750 2,000 3,750 2,625 6,375 175 6,550 1990 1,850 2,150 4,000 2,900 6,900 200 7,100 /a 1978 borrowing program as recommended in 1978 Economic Report No. 2026-IND. /b Projected to increase by 2% p.a. in real terms beyond 1978. For 1978 it has been assumed that IGGI bilateral ODA loans and non-IGGI ODA loans will amoant to $750 million and $125 million respectively. /c Projected to increase by 6% p.a. in real terms beyond 1978. It has been assumed that half of total commercial commitments would be at typical suppliers credit terms and half at typical private bank loan terms. /d Projected to remain constant in real terms. Notes: (a) All figures rounded to nearest $25 million. (b) The above borrowing program represents estimates of plausible concessional and semiconcessional commitments (columns 1-2 and 6), and commercial borrowing at a level consistent with prudent external debt management, on the assumption that the debt service ratio should not be allowed to exceed a level of around 20%. (c) For details, see attachment to this table. - 248 - APPENDIX Table 4.1 INDONESIA Borrowing Program - Attachment Assumptions regarding new loan commitments: A. Terms Creditor Interest Maturity (%) (incl. grace) IDA 0.75 50 (10) IBRD/ADB 8.5 20 (5) Other ODA 4 30 (10) Suppliers 9 12 (3) Private banks 9 8 (1) B. Disbursement Pattern (% of commitment) Year/a IDA IBRD/ADB Other ODA Suppliers Private banks Grants 1 2 4 6 10 28 25 2 10 13 18 23 40 25 3 21 20 27 25 17 25 4 21 19 26 22 11 25 5 16 15 14 15 4 6 11 10 5 5 7 7 5 2 8 6 6 2 9 4 6 10 2 2 /a Year 1 is year of commitment. Note: The assumptions regarding level and terms of new commitments imply the following weighted averages: Grace Interest Grant Maturity period rate element Concessional & semi- concessional loans 26.7 (7.8) 5.8 34.0 Commercial loans 10.0 (2.0) 9.0 3.7 Total loans 1977 21.5 (6.0) 6.8 24.5 1990 19.7 (5.4) 7.1 21.3 INDONESIA Service Payments, Commitments, Disbursements and Outstanding Amounts of External Public Debt (US$'000) Debt Outstanding at Beginning of Period Transact ions During Period 0 ther Changes Disbursed Including Service Payments Year only undisbursed Commitments Disbursements Principal Interest Total Cancellations Adjustment La (1) (2) (3) (4) (5) (6) (7) (8) (9) 1974 4,980,732 6,666,466 2,503,825 1,297,997 202,061 87,353 289,414 786 202,443 1975 6,277,351 9,169,887 3,264,924 2,371,722 393,783 173,321 567,104 2,132 -223,943 1976 8,112,485 11,814,953 3,133,258 2,327,035 625,164 362,080 987,244 9,797 141,523 1977 9,917,358 14,454,773 1,771,360 1,988,695 826,401 472,977 1,299,378 56,866 561,021 1978 /b 11,408,659 15,903,887 - - - - - - 435,140 THE FOLLOWING FIGURES ARE PROJECTED /c 1978 11,690,442 16,339,027 - 1,525,240 976,420 488,137 1,464,577 - - 1979 12,239,262 15,362,607 - 1,170,484 922,567 546,395 1,468,962 - 11 1980 12,487,178 14,440,051 - 838,922 899,844 556,135 1,455,979 - - 1981 12,426,234 13,540,207 - 545,088 966,235 514,906 1,481,141 - 2 1982 12,005,089 12,573,974 - 303,869 1,033,586 486,915 1,520,501 - - 1983 11,275,371 11,540,388 - 112,701 987,087 472,690 1,459,777 - -3 1984 10,400,983 10,553,298 - .82,564 978,807 416,264 1,395,071 - 12 1985 9,504,754 9,574,503 - 60,147 875,088 371,411 1,246,499 - 13 1986 8,689,825 8,699,428 - 8,406 980,850 349,951 1,330,801 - -10 1987 7,717,372 7,718,568 - 891 595,881 271,655 867,536 - 15 1988 7,122,397 7,122,702 - 252 569,292 245,282 814,574 - -8 1989 6,553,349 6,553,402 - 53 509,616 221,544 731,160 - 9 1990 6,043,795 6,043,795 - - 486,736 201,750 688,486 - 25 1991 5,557,084 5,557,084 - - 465,156 183,531 648,687 - 17 1992 5,091,945 5,091,945 - - 473,366 177,636 651,002 - 9 1993 4,618,588 4,618,588 - - 464,420 161,356 625,776 - 16 1994 4,154,184 4,154,184 - - 459,640 145,467 605,107 - 8 1995 3,694,552 3,694,542 - - 443,634 130,080 573,714 - 24 1996 3,250,942 3,250,942 - - 431,308 115,602 546,910 - 15 1997 2,819,649 2,819,649 - - 392,817 101,978 494,795 - -4 1998 2,426,828 2,426,828 - - 362,734 90,811 453,545 - 2 /a This column shows the amount of arithmetic imbalance in the amount outstanding including undisbursed from one year to the next. The most common causes of imbalances are changes in exchange rates and transfer of debts from one category to another in the table. /b At December 1977 exchange rates. /c On account of existing debt (as of December 31, 1977); at June 1978 exchange rates. Projections include adjustment for January 1978 replacement loans. M- 1',> INDONESIA Projected Disbursements, Net Resource Transfers and Debt Service (US$ million) Gross disbursements Net disbursements Net resource transfers Debt service Existing New Total Existing New Total Total Existing New Total Total Existing New Total loans loans loans Grants Total loans loans loans (incl. grants) loans loans loans (incl. grants) loans loans loans 978 1,525 225 1,750 100 1,850 549 225 774 874 61 225 286 386 1,464 - 1,464 979 1,170 744 1,914 100 2,014 248 710 958 1,058 -299 691 392 492 1,469 54 1,523 980 839 1,378 2,217 100 2,317 -61 1,303 1,242 1,342 -617 1,230 613 713 1,456 148 1,604 981 545 2,025 2,570 100 2,670 -421 1,876 1,455 1,555 -936 1,711 775 875 1,481 314 1,795 .982 304 2,547 2,851 125 2,976 -730 2,308 1,578 1,703 -1,217 2,016 799 924 1,521 531 2,052 1983 113 2,948 3,061 125 3,186 -874 2,581 1,707 1,832 -1,347 2,134 787 912 1,460 814 2,274 1984 83 3,306 3,389 125 3,514 -896 2,784 1,888 2,013 -1,313 2,167 854 979 1,395 1,138 2,533 1985 60 3,699 3,759 150 3,909 -815 2,994 2,179 2,329 -1,186 2,196 1,010 1,160 1,246 1,502 2,748 1986 8 4,098 4,106 150 4,256 -973 3,179 2,206 2,358 -1,322 2,188 866 1,016 1,331 1,910 3,241 1987 1 4,486 4,487 150 4,637 -595 3,384 2,789 2,939 -867 2,189 1,322 1,472 868 2,297 3,165 [988 4,882 4,882 175 5,057 -569 3,544 2,975 3,150 -814 2,133 1,319 1,494 815 2,748 3,562 1989 5,309 5,309 175 5,484 -510 3,701 3,191 3,366 -731 2,067 1,336 1,511 731 3,242 3,973 1990 5,766 5,766 175 5,941 -487 3,853 3,366 3,541 -688 1,986 1,298 1,473 689 3,780 4,469 >H INDONESIA Summary: Commitments, Disbursements, Net Resource Transfers, Debt Service (In US$ billion) Gross Net Net Principal Debt service Principal Debt Calendar Commit- disburse- disburse- resource Debt as % of tl as % of gross as % of tl service year ments /a ments /a ments /a transfers /a service debt serv. disbursements gross disb. ratio /b 1973 1.630 1.01 0.86 0.80 0.21 70 21 15 9.1 1974 2.604 1.39 1.20 1.11 0.29 70 21 14 7.7 1975 3.365 2.47 2.08 1.90 0.57 69 23 16 13.4 1976 3.233 2.43 1.80 1.44 0.99 63 41 26 16.2 1977 1.871 2.09- 1.26 0.79 1.30 64 62 40 16.8 Ln Projected: 1978 2.500 1.85 0.87 0.39 1.46 67 79 53 18.1 1979 2.775 2.01 1.06 0.49 1.52 63 76 48 17.2/18.1 1980 3.025 2.32 1.34 0.71 1.60 61 69 42 17.1/18.1 1981 3.350 2.67 1.56 0.88 1.80 62 67 42 17.5/18.4 1982 3.675 2.98 1.70 0.92 2.05 62 69 43 17.4/18.3 1983 4.025 3.19 1.83 0.91 2.27 60 71 43 17.2/18.1 1984 4.400 3.51 2.01 0.98 2.53 59 72 43 17.0/17.8 1985 4.775 3.91 2.33 1.16 2.75 57 70 40 17.1/17.9 1986 5.150 4.26 2.34 1.02 3.24 59 76 45 17.5/18.2 1987 5.575 4.64 2.94 1.47 3.17 54 68 37 16.1/16.7 1988 6.050 5.06 3.15 1.49 3.56 54 70 38 16.4/17.1 1989 6.550 5.48 3.37 1.51 3.97 53 72 39 16.7/17.3 1990 7.100 5.94 3.54 1.47 4.47 54 75 40 17.1/17.6 /a Figures include grants; grant commitments and disbursements during 1973-77 estimated at $100 million per annum. For,1978-90 see Table 4.3. /b During fiscal year. Projected ratios (1978-90) show lowest and highest under different assumptions regarding exports (see Table 3.7). - 252 - APPENDIX Table 4.5 INDONESIA Projected External Debt Outstanding, /a 1973-90 (US$ billion) Ratio: /b Debt outstanding:exports End of Period Disbursed Undisbursed Total Disbursed Total 1973 5.0 1.7 6.7 2.0 2.6 1974 6.3 2.9 9.2 1.4 2.0 1975 8.1 3.7 11.8 1.6 2.4 1976 9.9 4.6 14.5 1.5 2.2 1977 11.4 4.6 16.0 1.5 2.0 Projected: 1978 12.5 5.3 17.8 1.5 2.2 1979 13.4 6.1 19.5 1.5/1.6 2.2/2.3 1980 14.7 6.7 21.4 1.5/1.6 2.2/2.3 1981 16.1 7.4 23.5 1.5/1.6 2.2/2.3 1982 17.7 8.1 25.8 1.5/1.5 2.1/2.2 1983 19.4 9.0 28.4 1.4/1.5 2.1/2.2 1984 21.3 9.8 31.1 1.4/1.5 2.0/2.1 1985 23.5 10.7 34.2 1.4/1.5 2.0/2.1 1986 25.7 11.6 37.3 1.4/1.5 2.0/2.1 1987 28.5 12.5 41.0 1.4/1.5 2.0/2.1 1988 31.4 13.5 44.9 1.4/1.5 2.0/2.1 1989 34.6 14.6 49.2 1.4/1.5 2.0/2.1 1990 38.0 15.7 53.7 1.4/1.5 2.0/2.1 /a Based on actual transactions through 1977 and projected transactions during 1978-90. For details see Tables 4.2 and 4.3. /b Projected ratios (1978-90) under different assumptions regarding exports (see Table 3.7). N.B. Projected debt outstanding from end-1978 is at June 1978 exchange rate. - 253 - APPENDIX Table 5.1 INDONESIA Public Sector Resources, 1976/77 - 1990/91 Actual Est. Repel. Projected 1974/75 1975/76 1976/77 1977/78 1978/79 It 1979/80 1980/81 1981/82 1982/83 1983/84 Repelita III A. Current Prices (Rp billion) 1. Oil and LNG revenues 973 1 I205 1 l593 1,949 2.400 8,120 3 3,450 3 4.125 4.375 1,00 Oil (exports) 973 1,205 1,593 1,949 - - 3,075 3,075 3,325 3,625 3,750 16,850 LNG /a - - - - - - 250 375 400 500 625 2,150 2. Other current revenues /b 416 813 1,141 1,491 1,700 5,561 1,900 2,775 3,700 4,750 5,700 18,825 3. Total current revenues (1+2) 1,389 2,018 2,734 3,440 4,100 13,681 5,225 6,225 7,425 8,875 10,075 37,825 4. Current expenditures Ic 792 1,132 1,402 1,776 2,100 7,202 2,550 3,150 3,800 4,475 5,125 19,100 5. Non-oil public savings /d (2-4) (376) (319) (261) (285 (400) (1,641) (650) (375) (100) 275 575 (275) 6. Public savings /d (3-4) 597 886 1,332 1,664 2,000 6,479 2,675 3,075 3,625 4,400 4,950 18,725 7. "*t resource transfers /e 543 742 530 286 200 2,301 350 475 550 575 575 2,525 8. ...al (6+7) 1,140 1,628 1,862 1,950 2,200 8,780 3,025 3,550 4,175 4,975 5,525 21,250 9. Public sector monetary financing 164 673 62 (186 - 713 - - - - - - 111. Total (8+9) Lf 1,304 2,301 1,924 1,764 2,200 9,493 - - - - - - 11. Development expenditures g 741 1,291 1,939 2,125 2,600 8,696 - - - - - - B. Share of GNP (%) 1. Oil and LNG revenues 9.5 9.5 10.6 10.6 11.1 10.5 12.0 10.3 9.3 8.8 8.1 9.4 Oil (exports) 9.5 9.5 10.6 10.6 - - 11.1 9.2 8.3 7.7 - 7.0 - 8.3 - LNG /a - - - - 0.9 1.1 1.0 1.1 1.2 1.1 2. Other current revenues / 4.0 6.4 7.6 8.1 7.9 7.2 6.9 8.3 9.3 10.1 10.6 9.3 3. Total current revenues (1+2) 13.5 15.9 18.2 18.7 19.0 17.7 18.9 18.6 18.6 18.9 18.7 18.7 4. Current expenditures /c 7.7 8.9 9.3 9.6 9.7 9.3 9.2 9.4 9.5 9.5 9.5 9.4 5. Non-oil public savings Ld (2-4) (3.7) (2.5) (1.7) (1.5) (1.8) (2.1) (2.3) (1.1) (0.2) 0.6 1.1 (0.1 6. Public savings /d (3-4) 5.7 7.0 8.8 9.0 9.3 8.4 9.7 9.2 9.1 9.4 9.2 9.3 7. Net resource transfers /e 5.3 5.9 3.5 1.6 0.9 3.0 1.3 1.4 1.4 1.2 1.1 1.2 8. Total (6+7) 11.0 12.9 12.4 10.6 10.2 11.3 11.0 10.6 10.5 10.6 10.3 10.5 9. Public sector monetary financing 1.6 5.3 0.4 (1.0) - 0.9 - - - - - - 10. Total (8+9) /f 12.6 18.2 12.8 9.6 10.2 12.2 - - - - - - 11. Development expenditures L& 7.2 10.2 12.9 11.5 12.1 11.2 - - - - - - C. Constant 1976 Prices (Rp billion) 1. Oil and LNG revenues (exports) 1,216 1,324 1,593 1,756 1,860 7,749 2,100 1,950 1,900 1,950 1,925 9,825 2. Other current revenues /b 520 893 1,141 1,343 1,318 5,215 1,200 1,575 1,900 2,250 2,500 9,425 3. Total current revenues (1+2) 1,176 2,217 2,734 3,099 3,178 12,964 3,300 3,525 3,800 4,200 4,425 19,250 4. Current expenditures /c 990 1,244 1,402 1,600 1,628 6,864 1,625 1,800 1,950 2,125 2,250 9,750 5. Non-oil public savings L (2-4) (470) (351) (261) (257) (310) (1,649) (425) (225) (50) 125 250 (325 6. Public savings /d (3-4) 746 973 1,332 1,499 1,550 6,100 1,675 1,725 1,850 2,075 2,175 9,500 7. Net resource transfers /e 631 749 530 261 143 2,314 200 225 250 250 250 1,175 8. Total (6+7) 1,377 1,722 1,862 1,760 1,693 8,414 1,875 1,950 2,100 2,325 2,425 10,675 9. Public sector monetary financing 210 765 62 (166) - 817 - - - - - - 10. Total (8+9) /f 1,587 2,487 1,924 1,594 1,693 9,285 - - - - - - 11. Development expenditures 1 913 1,382 1,939 1,919 1,979 8,132 - - - - - - N.B. Deflator (domestic) 78 88 100 112.0 125.0 - 148.0 168.7 189.0 207.0 224.5 - Deflator (international) - US dollar 86 99 100 109.7 117.4 - 125.0 132.5 140.5 148.9 157.8 - Deflator (international) - Rupiah 86 99 100 109.7 140.0 - 188.3 199.5 211.5 224.2 237.7 - Composite deflator 80 91 100 111.0 129.0 - 158.0 176.0 195.0 212.0 228.0 - La Before public sector debt service payments. /b Equal to gross non-oil revenues minus subsidies on food, fertilizer and oil. For details see Table 5.4. Projections include difference between oil revenue projections A II and A I (see Table 5.3). /e Excluding external debt service payments and subsidies. For details see Table 5.4. d Before debt service. /e On account of public sector MT & LT borrowing and grants. Figures have been derived from IBRD external debt statistics. GDI budget data imply Central Government net resource transfers in current prices of Rp 170 billion in 1974/75, Rp 427 billion in 1975/76, Rp 615 billion in 1976/77, Rp 466 billion in 1977/78, Rp 616 billion in 1978/79 (est.), and Rp 2,294 billion during Repelita II. /f Excluding savings or dissavings by public sector enterprises. 1g Excluding fertilizer subsidies. Notes: Line I (oil exports) (projected) equal to oil revenue projection A I (see Table 5.3). Line 2 (projected) includes difference between oil revenue projections A II and A I (see Table 5.3). Line 3 (projected) includes oil revenue projection A II (see Table 5.3). Numbers within brackets are negative. INDONESIA Financing of Public Sector (Rp billion, current prices) Actual Est. Total Projected Total 1974/75 1975/76 1976/77 1977/78 1978/79 Repelita II 1979/80 1980/81 1981/82 1982/83 1983/84 Repelita fit Central Government L. Current expenditutes La 792 1,132 1,402 1,776 2,100 7,202 2,550 3,150 3,800 4,475 5,125 19,100 2. Subsidies ]b 385 185 144 97 300 1,111 550 400 225 25 - 1,200 3. Development expenditures Le 741 1,291 1,939 2,125 2,600 8,696 3,025 3,550 4,175 4,975 5,525 21,250 4. Total Expenditures 1,918 2.608 385 3,998 5000 17009 6,125 7100 822 9475 10,650 41550 Financing: 5. Revenues from oil and LNG exports 973 1,205 1,593 1,949 2,400 8,120 3,325 3,450 3,725 4,125 4,375 19,000 6. Net resource transfers /d 170 427 615 466 616 2,294 350 475 550 575 575 2,525 7. Nonoil current revenues (gross) 801 998 1,285 1,588 2,000 6,672 2,450 3,175 3,925 4,775 5,700 20,025 8. Budget surplus (-) -26 -21 -7 -3 -16 -73 - - - - - - 9. (5+6) as % of total expenditures (4) 60 63 63 60 60 61 60 55 52 50 46 52 10. (5+6) as % of development expenditures (3) 154 126 114 114 116 117 121 111 102 94 90 101 Other Public Sector 11. Oil revenues withheld by Pertamina 340 - - - - 340 12. Other public sector net resource transfers Je 373 315 (85) (180) (416) 7 13. Public sector monetary financing 164 673 62 (186) - 713 L4. Total Public Sector Investment Resources If 2301 124 164 2,200 9833 (5+11+6+12+13+7-1-2) 15. (5+6+11+12) as % of total public sector investment resources (14) 113 85 110 127 ill 109 /a Excluding external debt service and subsidies. /b On food, oil and fertilizer. /c Excluding fertilizer; projections (L979/80-1983/84) are residual (5+6+7+8 minus 1+2) assuming balanced budget, no Central Government monetary financing and other public sector net resource transfers of zero. d For 1974/75-1978/79 equal to budget items program aid and project aid minus external debt service (including Morgan loan); for 1979/80-1983/84 equal to total projected public sector net resource transfers. Le For 1974/75-1978/79 equal to total public sector net resource transfers (as derived from IBRD statistics including estimated grants) minus line 6 above. For 1979/80-1983/84, see footnote /d. f Excluding savings or dissavings by public sector enterprises. t.- - 255 - APPENDIX Table 5.3 INDONESIA Alternative Oil Revenue Projections, REPELITA III, 1979/80 - 1983/84 Total Repelita 1979/80 1980/81 1981/82 1982/83 1983/84 III A. Base Estimate Oil export price index (1976=100) 117 127 135 143 152 Oil revenues I (Rp billion) / 3,075 3,075 3,325 3,625 3,750 16,850 Oil revenues II (Rp billion) [c 3,300 3,400 3,750 4,100 4,350 18,900 Oil revenues III (Rp billion) /d 3,975 4,150 4,525 5,000 5,375 23,025 LNG revenues (Rp billion) /d 250 375 400 500 625 2,150 Additional revenues (II-1) (Rp billion, current prices) 225 325 425 475 600 2,050 Additional revenues (11-1) (As % of GNP) 0.9 1.0 1.0 1.0 1.1 1.0 Additional revenues (III-I) (Rp billion, current prices) 900 1,075 1,200 1,375 1,625 6,175 Additional revenues (III-1) (As % of GNP) 3.3 3.2 3.0 2.9 3.0 3.0 B. Low Estimate /e Oil revenues I (Rp billion) Lb 2,750 2,775 3,000 3,250 3,375 15,150 Oil revenues II (Rp billion) le 3,000 3,075 3,375 3,700 3,900 17,050 Oil revenues III (Rp billion) /d 3,575 3,725 4,075 4,500 4,825 20,700 LNG revenues (Rp billion) /d 225 350 350 450 550 1,925 Additional revenues (11-1) (Rp billion, current prices) 250 300 375 450 475 1,900 Additional revenues (II-I) (As % of GNP) 0.9 0.9 0.9 0.9 0.9 0.9 Additional revenues (III-I) (Rp billion, current prices) 825 950 1,075 1,250 1,450 5,550 Additional revenues (III-I) (As % of GNP) 3.0 2.8 2.7 2.8 2.7 2.8 N.B. Oil revenues Al minus BI (Rp billion, current prices) 350 325 375 425 450 1,925 Oil revenues All minus BII (Rp billion, current prices) 350 350 425 450 525 2,100 Oil revenues AIII minus,BIII (Rp billion, current prices) 425 450 500 550 625 2,550 Oil revenues Al minus BI (As % of GNP) 1.3 1.0 0.9 0.9 0.8 1.0 Oil revenues ATI minus BII (As % of GNP) 1.3 1.0 1.1 1.0 1.0 1.0 Oil revenues AIII minus BIII (As % of GNP) 1.5 1.3 1.3 1.2 1.2 1.3 /a Estimate of revenues if only exported oil is based. /b Estimate of revenues resulting from present contractual arrangements. /c Estimate of revenues if all explicit and implicit subsidies on domestically consumed oil are removed. Id Before public sector debt service payments. /e Assuming revenues remain 10% below base estimates. INDONESIA Non-Oil Current Revenues, Current Expenditures and Public Savings, 1974/75-1990/91 (Rp billion; current prices) Average Elasticity Actual Est. Projected Tax/GNP 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1974-77 1977-83 Cur renr Revenues (Non-oil) Taxes on income 261 353 436 563 750 900 1 190 2025 25 1.4 1.4 Income tax 43 65 87 105 Corporate tax 100 131 132 170 Withholding tax 78 97 147 202 IPEDA 29 36 42 53 Other 10 24 27 34 Taxes on domestic consumption (gross) 177 236 323 398 550 675 900 1,125 1,400 1,700 1.4 1.4 Taxes on domestic consumption (net)/b (208) 51 179 301 250 125 500 900 1,375 1,700 1.7 Sales tax 86 122 165 203 Excise tax 76 90 132 182 Miscellaneous levies 15 15 9 13 Oil revenues/subsidies 16 (1) 17 (65) Food subsidies (144) (50) (39) - Fertilizer subsidies (225) (134) (105) (32) Taxes on international trade 301 310 422 483 575 675 800 925 1,025 1.125 0.8 0.8 Import duties 161 175 256 287 Imports sales tax 69 73 102 115 Export tax 71 61 64 81 Non-tax revenues 62 99 104 144 125 200 225 275 325 375 1.5 0.9 Total non-oil revenues - net 416 813 1 141 1,70 1.900 2,775 3 4,750 5,70 2.5 1.3 Total non-oil revenues - gross 801 998 1,285 1,588 2,000 2,450 3,175 3,925 4,775 5,700 1.2 1.2 Subsidies /c (385) (185) (144) (97) (300) (550) (400) (225) (25) - Current expenditures /d 792 1,132 1,402 1776 2,10 2 3 3 4,475 5125 Personal 408 565 639 839 Material 167 292 390 377 Subsidies to regions 207 257 311 478 Other /e 10 18 62 28 Non-oil public savings /d (376) (319) (261) (285) (400) (650) (75) (100) 275 575 /a Projections include difference between oil revenue projections A II and A I (see Table 5.4). /b Equals gross minus subsidies (3-9). /c Projected subsidies also include that part of difference between oil revenues A II and A I which is not passed on to consumer. /d Excluding external debt service payments and subsidies. /e Including internal debt service payments. /f Before external debt service. Notes: - Projections assume GNP growth rate of 6.5% p.a. and the following GNP deflator (1977 = 100) for 1978 through 1983: 110 132.1 150.6 168.8 185.6 200.4 225.2 287.4 - Numbers within brackets are negative. M z INDONESIA Non-Oil Current Revenues, Current Expenditures and Public Savinys, 1974/75-1990/91 (As Z of GNP) Actual Est. Projected 1974/75 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1. Current Revenues (Non-oil) 2. Taxes on income 2.5 2.9 2.9 3.1 3.5 3.3 3.7 4.0 4.3 4.6 3. Taxes on domestic consumption (gross) /a 1.7 1.9 2.1 2.1 2.6 2.4 2.7 2.8 3.0 3.2 4. Taxes on domestic consumption (net) l (2.0) 0.4 1.2 1.6 1.2 0.4 1.5 2.3 2.9 3.2 5. Taxes on international trade 2.9 2.6 2.8 2.6 2.7 2.5 2.4 2.3 2.2 2.1 6. Non-tax revenues 0.6 0.8 0.7 0.8 0.6 0.7 0.7 0.7 0.7 0.7 7. Total non-oil revenues - net 4.0 6.7 7.6 8.1 7.9 6.9 8.3 9.3 10.1 10.6 8. Total non-oil revenues - gross 7.8 8.2 8.5 8.6 9.3 8.9 9.5 9.8 10.2 10.6 9. Subsidies Lc (3.8) (1.5) (0.9) (0.5) (1.4) (2.0) (1.2) (0.5) (0.1) - 10. Current expenditures Ld 7.7 9.4 9.3 9.6 9.7 9.2 9.4 9.5 9.5 9.5 11. Non-oil public savings ]e (3.7) (2.7) (1.7) (1.5) (1.8) (2.3) (1.1) (0.2) (0.6) 1.1 GNP current prices (Rp trillion) 10.3 12.1 15.1 18.4 21.6 27.6 33.5 40.0 46.8 53.9 a Projections include difference between oil revenue projections A 11 and A I (see Table 5.4). b Equals gross minus subsidies (3-9). /c Projected subsidies also include that part of difference between oil revenues A II and A I which is not passed on to consumer. d Excluding external debt service payments and subsidies. Ie Before external debt service. Note' Numbers within brackets are negative.