ABSTRACT

INTRODUCTION In 1966 Indonesia faced the dual spectre of a moribund economy and a state apparatus that was barely functioning. Inflation had spiralled out of control, creating a critical loss of confidence amongst both consumers and producers. Falling levels of productivity in almost all sectors of the economy had led to its virtual collapse, and there seemed little prospect that the situation would improve quickly. Finally, declining exports had created a persistent deficit in government budgets. The important consequence of this fiscal crisis was that the state had less resources with which to manage the economy. Despite a lingering impulse in sectors of the bureaucracy to issue decrees, the government found itself less and less able to ‘command’ the economy in the way that it had in the recent past.