stable but conservative macro economic settings, enabled economic growth throughout the late 

1970 s and 1980 s.  Growth in export earnings relied on low value added or raw materials 

because of low or negative levels of protection applied to the natural resource intensive sectors. 

In spite of a rapidly declining natural resources base, economic development continues to rely 

heavily on the natural resources intensive sectors to provide the necessary export earnings for 

foreign exchange.  Approximately sixty to seventy percent of Indonesia s economic growth has 

been derived from the oil and gas and forestry based sectors.  This raises questions about the 

long term sustainability of current economic growth scenarios, while natural resources are 

expected to be severely depleted within the next fifteen to twenty years. 

Given the finite nature of most natural resources, sustainable development will require greater 

application of man made capital.  In this way, current consumption of natural resources would 

be minimized and could allow future generations with consumption choices.  Without higher 

proportions of man made capital, the rate of natural resources utilization will exceed the rate of 

renewal, leading to exhaustion of the resources base.  If resources are to be sustained for the 

needs of future generations, the Indonesian economy needs to change the focus of 

industrialization policy away from import substitution towards export growth (NRMP Report No. 

26). 

Past trade protection policies resulted in domestic prices deviating from international prices due 

to manipulation of profit margins and reduction in domestic competition by protection of selected 

domestic producers.  In addition to loss of international price competitiveness, protection 

removed incentives to improve efficiency levels through innovation.  Companies were able to 

capture higher profit margins simply due to their level of protection.  Impacts of reduced 

competitiveness and innovation have resulted in less incentives to industrialize the economy for 

export markets. The incentive to industrialize has been limited to providing goods and services 

to the domestic market. 

Following the introduction of protection, initial employment gains were made as companies grew 

to meet local demand.  However, further growth in labor intensive manufacturing sectors was 

constrained by inabilities to compete on export markets with finished and, to a lesser extent, 

semi finished goods. Current industrialization policy will need to move quickly towards 

promoting export growth if labor absorption goals are to be achieved in the face of a rapidly 

growing labor force (NRMP Report No.55).  Sustainable development requires policies to shift 

away from import substitution towards export growth led by industrialization.  Such a change in 

focus could provide adequate labor opportunities for the growing work force and ensure that 

economic growth is less constrained by the availability of natural resources. 

1.3.2  Sustainable Natural Resources Management  

Sustainability of natural resources will require better integration of both economic and sectoral 

policies to ensure economic policies support the wider requirement of sustainable resources 

management as mandated by Indonesia s Constitution and the National Planning Guidelines 

(Garis Besar Haluan Negara, GBHN).  Determining the appropriate economic policy setting will 

contribute in large part to the sustainable development portfolio required by Indonesia in the 21

st

century. The right setting will assist removal of many distortions associated with resource 

allocation and growth performance parameters. By removing existing distortions, increased 

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