Indonesia: Lessons for an Economic Hit Man — History, Power and the Politics of Development

Indonesia: Lessons for an Economic Hit Man — History, Power and the Politics of Development

Introduction

Indonesia offers a remarkable case study in the relationship between economic development, geopolitics, strategic resources, political power and foreign influence.

In John Perkins’s Confessions of an Economic Hit Man, the chapter titled “Indonesia: Lessons for an EHM” describes the author’s preparation for an assignment in Indonesia and presents the country as an important arena in the Cold War competition between the United States and communist powers.

However, Indonesia’s story is much larger than Perkins’s personal narrative. Its modern history encompasses Dutch colonialism, Japanese occupation, the struggle for independence, Sukarno’s nationalist politics, the rise of Suharto, the Cold War, rapid economic growth, authoritarian rule, the Asian Financial Crisis and eventual democratization.

The Indonesian experience therefore raises a fundamental question:

Can economic development be separated from geopolitical power?

The answer appears to be no. Indonesia demonstrates how economics and strategic interests frequently become intertwined.

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1. Why Indonesia Was Strategically Important

Indonesia is not an ordinary country.

It is a vast archipelagic state positioned between the Indian and Pacific Oceans, controlling or influencing several strategically important maritime approaches.

Its geography gives it enormous geopolitical significance.

Indonesia also possesses substantial natural resources, including:

- Oil and natural gas

- Coal

- Nickel

- Copper

- Palm oil

- Timber

- Other mineral resources

Its geographical position and resource base have historically attracted external powers.

Long before modern geopolitics, traders from Asia and the Middle East travelled through the Indonesian archipelago in search of spices. European powers later entered the region and attempted to dominate its lucrative trade.

Indonesia consequently became a historical example of how commerce can evolve into strategic competition.

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2. The Colonial Legacy

European involvement fundamentally transformed the Indonesian economy.

The Dutch gradually established political and commercial dominance over the archipelago. The Dutch East India Company became one of the world's earliest powerful multinational trading corporations.

Indonesia's spices—particularly cloves, nutmeg and mace—were extraordinarily valuable.

Over time, the colonial economy expanded beyond spices into commodities such as:

- Coffee

- Sugar

- Rubber

- Tea

- Palm oil

- Petroleum

- Other plantation and mineral products

The economic structure was largely designed around the extraction and export of commodities.

This created a lasting developmental dilemma:

A country may possess enormous natural wealth while large sections of its population remain economically disadvantaged.

That contradiction would remain important throughout Indonesia's modern history.

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3. Japanese Occupation and the Road to Independence

During the Second World War, Japan occupied the Dutch East Indies.

The occupation was extremely disruptive. Resources were redirected toward the Japanese war effort, while shortages affected ordinary Indonesians.

The collapse of Japanese power created a political opening.

On 17 August 1945, Sukarno and Mohammad Hatta proclaimed Indonesian independence.

The Netherlands attempted to re-establish control, but Indonesian resistance, international pressure and changing geopolitical circumstances eventually forced Dutch recognition of Indonesian sovereignty.

Indonesia's independence struggle demonstrated an important lesson:

Political sovereignty is often only the beginning of nation-building.

Winning independence does not automatically create political stability, institutional capacity or economic prosperity.

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4. Sukarno and the Problem of Nation-Building

Indonesia was extraordinarily difficult to govern.

It consisted of thousands of islands, numerous ethnic communities, different languages, religious traditions and distinct regional identities.

Sukarno attempted to construct a unified national identity through Indonesian nationalism.

His political philosophy eventually developed into Guided Democracy.

During the late 1950s and early 1960s, political institutions became increasingly centralized.

Sukarno also pursued a foreign policy that was independent of Western influence and developed relationships with communist states.

Indonesia's confrontation with Malaysia further demonstrated Sukarno's willingness to use foreign policy as an instrument of domestic and international strategy.

But political confrontation came with severe economic consequences.

Inflation accelerated, exports suffered and economic management deteriorated.

The Indonesian experience therefore provides another lesson:

National prestige and geopolitical ambition cannot indefinitely substitute for sound economic management.

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5. The 1965 Crisis and the Rise of Suharto

Indonesia entered one of the darkest periods of its modern history in 1965.

An attempted coup was followed by an enormous political upheaval.

The Indonesian Communist Party, or PKI, was blamed for the attempted coup, and the military launched a campaign against communist organizations and alleged supporters.

Hundreds of thousands of people were killed according to widely cited historical estimates, although exact figures remain debated.

General Suharto gradually accumulated power and eventually became president in 1968.

This marked the beginning of the New Order.

The transition was not simply a change of leaders.

It represented a profound transformation in Indonesia's domestic politics and international orientation.

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6. Indonesia and the Cold War

This is where Perkins's EHM narrative becomes particularly important.

During the Cold War, Indonesia was viewed by Washington as strategically crucial.

The United States feared the expansion of communism throughout Southeast Asia.

Indonesia's size, population, resources and geographical position made its political orientation exceptionally important.

Washington therefore had strong incentives to encourage Indonesia to remain within the Western economic and strategic orbit.

Perkins portrays economic development projects as part of a broader geopolitical strategy.

His central argument is that apparently benevolent economic initiatives can sometimes serve strategic interests simultaneously.

However, readers should distinguish this interpretation from established historical fact.

Perkins's book is a personal memoir and political critique, while the broader history of Indonesia's Cold War transformation is documented independently by historians and scholars.

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7. Economic Reconstruction Under Suharto

Suharto inherited an economy in severe distress.

The government subsequently introduced major economic reforms.

A group of Western-trained Indonesian economists became influential in shaping economic policy. They emphasized:

- Macroeconomic stability

- Fiscal discipline

- Monetary stability

- Foreign investment

- International trade

- Infrastructure development

- Agricultural productivity

Indonesia gradually reopened its economy to international investment.

Economic growth accelerated dramatically.

Infrastructure expanded, agricultural production improved and poverty declined substantially over the following decades.

Research on Indonesia's economic development emphasizes prudent macroeconomic management, openness to the global economy and poverty reduction as important contributors to this transformation.

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8. The Development Paradox

But Indonesia's economic success came with a political cost.

Suharto's government maintained extensive political control.

Opposition was restricted, the military played a major political role and corruption became deeply embedded within parts of the economic system.

Business opportunities were frequently concentrated among politically connected groups.

This produced a paradox:

Economic modernization can occur alongside political repression.

Indonesia therefore challenges the simplistic assumption that economic growth automatically produces political freedom.

Its experience suggests that economic performance and political legitimacy are separate questions.

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9. What Does “Economic Hit Man” Mean?

In Perkins's terminology, an Economic Hit Man (EHM) is an individual who allegedly uses economic forecasting, development projects, financial incentives and debt arrangements to encourage governments to adopt policies favorable to powerful corporations or governments.

The alleged mechanism is broadly described as:

Large development project → external financing → increased debt → political leverage → strategic influence.

Perkins argues that projects can be presented as development initiatives while simultaneously advancing geopolitical and corporate interests.

This is the central conceptual lesson of the chapter.

However, these claims should not be treated as an uncontested historical description. Perkins's account has been heavily debated, and his broader allegations have been challenged by critics.

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10. Why Infrastructure Can Become Geopolitical

Infrastructure appears politically neutral.

A power plant is simply a power plant.

A road is simply a road.

A port is simply a port.

But infrastructure can have strategic consequences.

A major energy project can:

- Increase industrial capacity

- Create employment

- Improve electricity access

- Strengthen state capacity

At the same time, it can:

- Create financial obligations

- Increase dependence on foreign technology

- Benefit particular corporations

- Influence trade patterns

- Generate strategic leverage

Therefore, infrastructure should be evaluated through both economic and geopolitical lenses.

This is perhaps one of the most important ideas associated with the EHM narrative.

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11. Indonesia's Resource Wealth

Natural resources have always been central to Indonesia's strategic importance.

Oil became particularly important during the twentieth century.

Later, Indonesia's mineral wealth became increasingly significant to global manufacturing supply chains.

In the twenty-first century, nickel has become especially important because of its role in batteries and electric-vehicle supply chains.

This demonstrates an enduring principle:

«Natural resources are not merely commodities; they can become instruments of geopolitical influence.»

Countries possessing strategically important resources gain bargaining power—but only if they develop the institutions, technology and industrial capacity required to capture sufficient value from those resources.

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12. The 1997–98 Asian Financial Crisis

Indonesia's development model eventually faced a devastating test.

The Asian Financial Crisis of 1997–98 produced a massive economic and political shock.

The Indonesian rupiah collapsed, financial institutions came under enormous pressure and economic output contracted severely.

The crisis eventually contributed to Suharto's resignation in May 1998 after more than three decades in power.

Indonesia subsequently entered the Reformasi era.

This was a decisive turning point.

Political institutions were redesigned, democratic elections became central to the political system and decentralization transferred substantial authority away from Jakarta.

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13. The Six Major Economic Lessons from the Crisis

Modern scholarship identifies several important lessons Indonesia drew from the 1997–98 crisis.

1. Fiscal Prudence Matters

Governments need sufficient fiscal capacity to survive severe economic shocks.

2. Independent Monetary Institutions Matter

A credible central bank can strengthen monetary stability and public confidence.

3. Financial Regulation Cannot Be Neglected

Weak banking supervision can transform financial problems into national crises.

4. Foreign Exchange Reserves Provide Strategic Protection

Large reserves can provide a buffer during external financial shocks.

5. Social Safety Nets Matter

Economic crises can rapidly push vulnerable populations into poverty.

Governments therefore need mechanisms capable of responding quickly.

6. Political Decentralization Can Strengthen National Cohesion

Indonesia discovered that decentralization could help manage regional tensions and reduce excessive concentration of political power in Jakarta.

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14. The Indonesian Lesson About Debt

One of the most important lessons from the Indonesian experience is that debt itself is not necessarily bad.

Borrowing can finance productive infrastructure and accelerate development.

The real question is:

What is the borrowed money being used for, and can the investment generate sufficient economic returns?

A country becomes vulnerable when borrowing finances:

- Prestige projects with weak economic returns

- Persistent fiscal deficits

- Unsustainable consumption

- Politically connected businesses

- Projects without adequate transparency

Therefore, responsible borrowing requires:

Transparency + productive investment + repayment capacity + institutional oversight.

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15. Development Versus Dependency

The EHM narrative raises a deeper question:

When does foreign investment become dependency?

Foreign capital can bring:

- Technology

- Employment

- Infrastructure

- Expertise

- Export opportunities

- Capital formation

But excessive dependence can create vulnerabilities if a country becomes reliant on:

- Foreign financing

- Foreign technology

- Foreign corporations

- Foreign markets

- External political support

The solution is not necessarily to reject foreign investment.

The more sustainable strategy is to ensure that foreign investment contributes to domestic technological capability and industrial upgrading.

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16. Indonesia's Strategic Balancing

Modern Indonesia illustrates another important lesson.

Rather than completely aligning itself with one great power, Indonesia generally seeks strategic autonomy.

It maintains relationships with:

- The United States

- China

- Japan

- India

- ASEAN partners

- Europe

- Other emerging economies

This approach reflects Indonesia's long-standing tradition of an independent foreign policy.

Its geopolitical strategy can therefore be described as:

engage widely, avoid excessive dependence and preserve strategic autonomy.

Recent developments demonstrate this balancing approach. Indonesia has simultaneously deepened cooperation with China in areas including minerals, energy, technology and defence while maintaining broader relationships with other major powers.

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17. The Bigger Lesson for Developing Countries

Indonesia's history offers several lessons for developing countries.

Lesson One: Natural Resources Are Not Enough

Resource wealth does not automatically create prosperity.

Institutions determine how resources are managed.

Lesson Two: Economic Stability Matters

High inflation, fiscal disorder and unstable financial institutions can destroy years of economic progress.

Lesson Three: Infrastructure Must Be Productive

Infrastructure should generate measurable economic and social returns rather than merely political prestige.

Lesson Four: Foreign Capital Should Serve National Development

International investment can be beneficial when domestic institutions ensure that the country captures long-term value.

Lesson Five: Strategic Autonomy Requires Economic Strength

A country cannot maintain geopolitical independence if its economy is structurally dependent on external powers.

Lesson Six: Political Stability Has Limits

Stability can facilitate investment and growth, but stability achieved through excessive political repression can eventually create serious institutional weaknesses.

Lesson Seven: Institutions Outlive Leaders

Strong institutions are more durable than individual political personalities.

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18. Indonesia's Transformation

Indonesia's journey is extraordinary.

It moved from:

Colonial rule → independence → political turmoil → authoritarian consolidation → rapid economic growth → financial crisis → democratic reform → emerging-market power.

The country remains a major regional actor and an important member of the G20 and ASEAN.

Its experience demonstrates that development is not a straight line.

Countries experience:

growth → crisis → adaptation → reform → renewed growth.

The ability to learn from previous crises is itself a form of national power.

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19. The Real Lesson of “Indonesia: Lessons for an EHM”

The most important lesson is not simply that foreign powers manipulate developing countries.

The deeper lesson is that economic power, political power and geopolitical power frequently overlap.

A development project can simultaneously be:

- An economic investment

- A political instrument

- A corporate opportunity

- A diplomatic tool

- A strategic asset

That is why governments must evaluate major economic agreements beyond their immediate financial benefits.

The critical questions should be:

Who finances the project?

Who builds it?

Who owns the technology?

Who receives the profits?

Who carries the debt?

What happens if the project fails?

Does the project strengthen domestic capabilities?

Does it increase or decrease strategic dependence?

These questions remain relevant in the twenty-first century.

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Conclusion

Indonesia's history provides a powerful lesson about the complexity of development.

Its experience demonstrates that economic modernization can produce extraordinary improvements in living standards, but growth must be accompanied by sound institutions, financial discipline, transparency, technological development and political accountability.

The EHM narrative adds another dimension: development projects can exist within larger geopolitical contests.

Whether one accepts all of John Perkins's allegations or not, the broader question is worth examining:

Economic assistance is never purely about economics when major strategic interests are involved.

Indonesia's evolution therefore offers a compelling case study in development, sovereignty, resource politics, foreign influence and strategic autonomy.

The ultimate lesson is simple:

«A country becomes genuinely powerful not merely when it attracts foreign capital, but when it develops the institutions, technology, human capital and economic resilience necessary to decide how that capital serves its own national interests.»