Natural resources do not automatically equal economic success. Many countries, such as Saudi Arabia and Qatar, have successfully leveraged their natural resources to improve their economy and status in recent years. Yet, others nations have needed help to leverage what they have at home to better progress and globalize with the rest of the world. Much of this is due to the low economy and people’s welfare levels. The government and those in charge have weak institutions in place. Thus, there is no transparency or oversight in the countries.
Underdevelopment is a pervasive issue that plagues many countries worldwide, especially those with abundant natural resources. Despite having access to goods that so much of the world wants and uses, these countries often find themselves trapped in a cycle of poverty and instability. This phenomenon is known as the resource curse. The relationship between underdevelopment and the resource curse is complex and multifaceted. Still, it is clear that more than the exploitation of natural resources are needed to ensure economic growth and development. This article will explore the underlying causes of underdevelopment and how the resource curse perpetuates this vicious cycle.
Indonesia post-1990 as a case study:
Many of the countries that face this struggle, known as the resource curse, are located in Africa and South East Asia. One example I want to focus on is Indonesia. They were one of the many countries negatively affected by The Asian Financial Crisis (AFC) in the 1990s. In South East Asia, some countries were titled “miracle economies.” Indonesia fell on that list. Before the financial crisis, they had experienced significant and somewhat surprising economic growth. Once the economy crashed during the crisis, inflation skyrocketed. Corporations and banks started to borrow significant amounts of money, leading to a general overvaluation of currency in the region in the context of very little regulation of financial markets.
As a result of the crisis, the International Monetary Fund (IMF) offered loans and other forms of financial assistance to Indonesia. The two entered a three-year stand-by arrangement for US$10 billion. Ultimately, this agreement was augmented by US$1.4 billion as of July 1998. This came with substantial austerity measures such as reduced government spending, subsidy cuts, increased interest rates, and financial sector forms. In Indonesia, these austerity measures led to unemployment and limited access to healthcare and education. The government was forced into a corner, exacerbating preexisting inequality and underdevelopment in the country.
After the Asian Financial Crisis, Indonesia’s economy depended heavily on exports. Most of these exports were natural resources, including oil, gas, and minerals. In a report on Indonesia, the World Bank states that “mineral fuels, oils, and distillation products accounted for 22.2% of Indonesia’s total exports,” and “ores, slag and ashe” accounted for around 11.8%. Because the IMF intervention focused on exports to build up the economy, the country subsequently became dependent on these exports. Thus, they became vulnerable in the global economy to commodity prices and fluctuations in demand.
One example of the Indonesian economy struggling because of demand changes was back in 2014 and 2015 when the price of oil dropped worldwide. Oil production made up more than 20% of Indonesia’s exports. Thus, a fall in the price greatly impacted how much money was coming into the country.
The trade liberalization and foreign investment that came along with the IMF intervening in Indonesia during the 1990s boxed Indonesia into the role of a commodity exporter. Indonesia never invested in anything besides commodity exports or diversified its economy. Thus, Indonesia is now heavily reliant on exporting its natural resources and has few skilled job opportunities or focus on value-added products. The World Bank stated that there is potential for developing the manufacturing sector in Indonesia. However, it has not improved as much as they would like. For the Indonesian economy to grow and expand past its current state, the government must invest in infrastructure, regulatory barriers, and a shift away from export commodities.
The economic model currently in place only perpetuates cycles of underdevelopment and furthers inequality and poverty. The IMF intervention helped Indonesia produce enough resources to export and survive the Asian Financial Crisis. However, with these same systems, Indonesia has no room to shed its title of ‘developing country.’
Takeaways:
Indonesia serves as a critical case study highlighting the limitations of the Western development model and the need for a more nuanced understanding of the complex challenges facing developing countries. The solution to underdevelopment is not one size fits all.
The Asian Financial Crisis and the subsequent IMF intervention in Indonesia demonstrated how the imposition of Western economic policies and a focus on natural resource exploitation could perpetuate cycles of underdevelopment and further inequality and poverty. It is essential to recognize that the stakes of that offering help in terms of development are not always altruistic and that pushing external development models onto developing countries may serve to benefit the interests of those offering the aid rather than the local populations.
Even if there are no hidden intentions behind aid or external development plans, it is crucial to understand that development will happen in a different way in every country and culture. Forcing a specific path will not speed things up or magically solve all the problems. As such, it is crucial to approach development with a critical eye and engage in partnerships that prioritize local ownership, community development, and sustainable and equitable growth.
Indonesia during and directly after the Asian Financial Crisis should serve as a warning against simplistic one-size-fits-all approaches to development and as a call to action for more thoughtful and inclusive processes that prioritize local needs and aspirations.
Share This Post On
0 comments
Leave a comment
You need to login to leave a comment. Log-in
