5. Indonesia and the Resource Curse: Economic and Environmental Dimensions

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 pandemic 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 2005–2011. The economic, social, and environmental impacts of these two booms have differed significantly. Third, the country experienced major regime change in 1998–1999, from the centralized, authoritarian Soeharto regime 1966–1998, 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 impacts. We examine these issues in comparative context, employing as reference points two very large natural resource exporters, Brazil and Nigeria, and Malaysia, a smaller, more dynamic East Asian comparator.

Consistent with the original resource curse literature, although the paper focuses primarily on the economic dimensions, a twenty-first-century perspective would give more attention to environmental aspects and particularly the energy transition to a low-carbon economy. In this respect, Indonesia is still in the early stages of such a transition and in the sustainable maintenance of its forest, maritime, and other natural resources.