Stabilization and Structural Adjustment in Indonesia

Like most petroleum producing countries, Indonesia experienced a sharp deterioration in its export conditions during the early 1980s. Given the country's heavy reliance on oil taxation and relatively low per capita income, this exogenous shock seriously disrupted development plans and induced extensive structural adjustments in the economy. Indonesia has taken greater initiative than some to stabilize its economy and reduce the distortionary threat of expansionist policies inherited from the oil boom. Its success in this regard was due to an eventual willingness to implement voluntary stabilization and relatively favorable credit rating. In this study, a calibrated intertemporal general equilibrium model is used to evaluate the Indonesian adjustment policy of the period 1980-86 with particular attention to the growth and distributional implications of adjustment. The findings of this report indicate that more efficacious policies could have been implemented. These policies would ...