The structure and causes of manufacturing sector protection in Indonesia

This chapter examines the evolution of the system of protection in Indonesia since the 1930s. The aims of protection in this period were to limit the influx of cheap Japanese goods, which threatened to displace imports from the Netherlands and to encourage domestic industrialisation, especially on Java. The period was characterised by complex and continually changing regulation on exchange rates, import and export duties, import prepayment schemes and quantitative restrictions. Although the foreign trade regulations and policies that evolved during this period were aimed at increasing tax revenues and allocating scarce foreign exchange, especially after the end of the commodity boom due to the Korean War, the system led to high levels of nominal protection. As a consequence of the high import prices resulting from the import regulation system and owing also to political motivations, illegal barter trade increased substantially between 1957-1958 and probably reached a peak in the early 1960s.