Trade

INDUSTRY
New Order Developments

After coming to power, the New Order government supervised the rapid industrialization of the Indonesian economy. Industrial production, as a share of total GDP, grew from 13 percent in 1965 to 37 percent in 1989. The protective trade policies of the 1970s contributed to the changing composition of industry, away from light manufacturing such as food processing and toward heavy industries such as petroleum refining, steel, and cement. These industries were often dominated by government enterprises. Although these large-scale, capital-intensive firms offered few employment opportunities to the rapidly growing labor force, the surge in manufacturing exports begun in the mid-1980s promised to increase employment and the role of private investment in the 1990s.

Despite its increasing significance, the industrial sector employed only about 10 percent of the work force. The BPS conducted a comprehensive economic census roughly every ten years beginning in 1964. The 1986 economic census provided detailed information on approximately 13,000 firms with more than twenty employees in all industrial sectors except oil and natural gas processing. Economist Hal Hill analyzed in detail Indonesian industrial growth based on census data, combined with national income account data on the oil and gas sector. The most important industrial sector, according to these studies, was oil and natural gas processing, which accounted for more than 25 percent of total value-added in industrial output. The second major industrial activity was the production of kretek cigarettes, the popular traditional Indonesian cigarette made from tobacco blended with cloves. Cigarette production accounted for 12 percent of total industrial valueadded . A diverse range of almost thirty major industrial sectors, from food processing to basic metals, accounted for the remaining production.

Hill identified seven ownership categories of industrial firms, including privately owned, government owned, foreign owned, and a variety of joint-venture combinations among government, the private sector, and foreign investors. Almost 12,000 firms from the total number of 12,909 firms surveyed were privately owned. Some 350 private-foreign joint ventures and 400 private-foreign-government joint ventures accounted for most of the remainder. The private firms were much smaller than the joint ventures; compared with government joint ventures, private firms were less than one-tenth the size and employed on average one-sixth the number of workers. Although far less numerous, government joint-venture firms still accounted for 25 percent of the total value of industrial production.