Indonesia adopted a new foreign investment law in late 1966/early 1967, signaling a major policy reversal toward attracting foreign direct investment (FDI). The law offered a clearer framework for private capital, especially in natural resources and industry. This became a core pillar of New Order growth—bringing investment, technology, and export earnings, while also increasing dependence on global capital flows.
In March 1966–1967, Suharto’s emerging government shifted away from Sukarno-era economic controls and moved toward stabilization, debt rescheduling, and renewed ties with international lenders. A key goal was to stop hyperinflation and restore basic state capacity to plan and spend. This set the foundation for the New Order’s development strategy: political control paired with technocratic economic management.
In 1967, the Inter-Governmental Group on Indonesia (IGGI) was established to coordinate official foreign aid and support Indonesia’s economic recovery. IGGI helped organize debt rescheduling and large inflows of concessional loans and grants. This external financing became tightly linked to New Order development planning and macroeconomic stability goals.
Indonesia launched Repelita I (the first Five-Year Development Plan) on April 1, 1969, making development planning the central tool of New Order economic policy. The plan emphasized rehabilitation of infrastructure and increasing agricultural output while maintaining macro stability. These plans (Repelita) continued through 1998 and shaped how budgets, projects, and state agencies pursued growth and social goals.
On January 15–16, 1974, student demonstrations in Jakarta escalated into riots during a visit by Japan’s prime minister. Protesters criticized corruption, inequality, and the perceived dominance of foreign investment, with violence also targeting ethnic Chinese businesses. The episode pushed the government toward tighter political control and adjustments intended to increase “native” Indonesian participation in the economy.
In 1975, the state oil company Pertamina faced a major debt crisis after heavy borrowing for ambitious projects. The government ultimately guaranteed and rescheduled debts, revealing major governance and oversight weaknesses. The crisis became a cautionary turning point, strengthening the case for tighter monitoring of public-sector debt and more cautious macroeconomic management.
On March 30, 1983, Indonesia sharply devalued the rupiah as oil export earnings weakened. The move aimed to improve export competitiveness and protect the government’s development spending under tight fiscal constraints. It signaled a broader shift: with oil revenues less reliable, policy began pivoting toward non-oil exports and manufacturing growth.
In June 1983, Indonesia introduced major banking reforms (often linked to “Pakjun 1983”), removing interest-rate ceilings and abolishing bank credit ceilings. These steps moved the financial system toward more market-based allocation of credit. The reforms were meant to mobilize private savings and finance new export-oriented growth as the economy adjusted to lower oil revenues.
In 1984, Indonesia was widely recognized as reaching rice self-sufficiency after years of heavy investment in irrigation, input subsidies, and government procurement and stock management. This achievement strengthened food security and became a symbolic success of New Order development planning. It also highlighted the state’s strong role in agricultural markets through agencies such as BULOG.
On October 27, 1988, the government issued the “Pakto 1988” deregulation package that eased licensing and branching rules and expanded opportunities for private banking. The reforms accelerated financial deepening and credit growth, supporting investment during a period of rapid expansion. Over time, however, fast liberalization also increased vulnerabilities from weak supervision and risky lending.
In July 1992, Indonesia’s donor coordination forum shifted from the Netherlands-chaired IGGI to the World Bank–chaired Consultative Group on Indonesia (CGI). The first CGI meeting took place in Paris on July 16–17, 1992. This change preserved donor financing coordination while reflecting political tensions over donor criticism and Indonesia’s desire to reshape aid relationships.
On November 5, 1997, Indonesia entered a three-year IMF Stand-By Arrangement after the rupiah and banking system came under severe pressure during the Asian Financial Crisis. The program combined emergency financing with bank closures, fiscal and monetary measures, and structural reforms. Implementation problems and political unrest undermined confidence, deepening the economic contraction and social hardship.
In May 1998, shootings of student protesters and widespread riots in multiple cities intensified the legitimacy crisis of the New Order amid economic collapse. On May 21, 1998, Suharto resigned, and Vice President B. J. Habibie became president. This marked the political end of the New Order economy and opened the Reformasi period, including major changes in governance and economic policy direction.
Indonesia's Suharto-era Development Policies and the New Order Economy (1967-1998)