Will Indonesia learn her lesson from the Dutch Disease phase?

Inspired by Pierre van der Eng work

Indonesia experienced commodity boom several times. Before 1930 when there was a strong demand for sugar, the country increased its production and gained international trade surplus. In this time of Dutch colonialization, the trade was run without any policies of protection or transfer to other sectors. Resulting minimum utilization on the trade revenue for the country's capital stock which led to non-optimum long-term growth rate.

Then, came the time of oil boom in 1970s. In this era, the New Order implemented a trade protection for manufacturing and received high tax revenue from the oil extraction. The government at that time had medium term plans for the manufacturing sector which lead to industrialization, particularly of state-owned enterprises. Well-design development plan for the industry made slight Dutch Disease of commodity boom-bust and took Indonesia's industry to a step forward.

The world then experienced another commodity boom from early 2000 to the end of 2011, which was led by mining commodities such as coal and oil. Indonesia benefits from this boom indicated by strong GDP growth of around 6%, the highest after the Asian monetary crisis. However, the government on those years were relaxed, had unclear manufacturing policies, which intensified pressures to real effective exchange rate; thus, resulting industrial products less competitive. The recurring commodity boom in this cycle had no advantage in Indonesia's manufacturing sector. On the other hand, profit of mining sector which has low labor absorption could only be obtained by the businessman than the poor, resulting larger income gap.

So, will Indonesia learn her lesson from the recurring phase of commodity boom-bust? Or, will it only be a part of good-to-know economic history book? We will see in the next cycle....