Avoiding the Resource Curse: Lessons from Indonesia

Abstract:Natural resources—blessing or curse? Indonesia provides an excellent case study for an examination of this question. It is a major commodity exporter; the fourth most populous country in the world; and the world's largest archipelagic state with huge mineral, forest and maritime resources. Indonesia also has three distinctive features that are particularly relevant for such a study. First, with the exception of the Asian Financial and COVID-19 crises, it has had at least moderately strong economic performance for the past half-century. This distinguishes it from the majority of resource-rich developing countries, and therefore there are lessons to be learnt from its management of these boom and bust episodes, particularly the latter. Second, Indonesia has experienced two rather different resource booms—the first based mainly on oil and gas in the 1970s and the second based primarily on coal, palm oil and gas over the years 2005–11. The economic, social and environmental effects of these two booms have differed significantly. Third, the country experienced major regime change in 1998–99, from the centralized, authoritarian Soeharto regime in 1966–98, which presided over the first boom, to the subsequent democratic, decentralized regime during the second boom. The very different political and institutional arrangements had important implications for the management of the boom and its distributional effects. We examine these issues in a comparative context, employing as reference points two very large natural resource exporters, Brazil and Nigeria, and Malaysia, a smaller, more dynamic Southeast Asian comparator.