Indonesia membership in 1962. In the period 1977

Indonesia has experienced two
different periods as an oil exporter and an oil importer country. In the past,
upstream oil and gas industry in Indonesia has reached its heyday. Indonesia
became the initiator of the establishment of OPEC (Organization of the Petroleum
Exporting Countries) and started
its membership in 1962. In the period 1977 to 1997, Indonesia is one of the
largest oil exporters in the world with a total production of 1.7 million
barrels of oil per day
(Lewis, 2007). The rising
world
oil prices have
had a huge positive impact, especially for the economic growth
of Indonesia (Arndt, 1983). It also led to an increase in
Indonesian oil prices which was seen from the uplift value of oil and gas export which
peaked in 1981/1982
with more than US $ 19,4 billion. This attainment had an impact on the
skyrocketing GDP of Indonesia in a decade with initial GDP around 5.668 billion USD in 1973 being
over 85.52 billion USD in 1981; mining and quarrying is the largest sector which amounted to about 24 percent of the
total GDP.

Indonesian economy
grew at an average annual rate of almost seven percent. This achievement
enabled Indonesia to graduate from the ranks of ‘low-income
countries’ into that of the ‘lower-middle-income
countries’. However, the Asian Financial
Crisis that erupted in the late
1990s had a dramatic impact on the Indonesian economy, resulting in a decline
in the Gross Domestic Product
(GDP) of 13.6 percent in 1998 and limited growth of 0.3 percent in 1999. This condition is
getting worse with the decrease of oil production in Indonesia while domestic
oil consumption is increasing due to the increase in the population. Indonesia
started importing oil to meet domestic demand and was no longer a net oil
exporter so in 2009 the government decided to end OPEC membership.

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By 2015 Indonesia’s oil production
is only 800 thousand barrels per day or only 1.2 percent of GDP, while consumption reached
1.6 million barrels per day. In other words, the government must meet the
shortfall of crude oil imports and maintain the stability of oil in the country
using subsidies. In order to ensure sustainable growth and inclusive sustainability,
government spending, especially on education, health, poverty alleviation and
infrastructure, should be improved on an ongoing basis. To achieve this, in
turn, state revenues need to be increased and the priority of spending needs to
be redefined. In addition, the recent decision by the government to cut fuel
subsidies is another step towards achieving that goal.

Is
natural resource-rich a blessing or a curse for a country? This question has
generated controversy among scholars. Frankel (2012) states
that there is a great deal of literature that focuses on the relationship
between the abundance of resources and economic growth. However, the experience over the
last few decades reveals that natural resources are making a decline in
economic growth. This is evidenced by Sachs and Warner (1995) who conducted large cross-country
investigations. They argue that there is a negative relationship between the
abundance of natural resources and economic growth.

Iimi (2006) considers this curse of nature come from a
different perspective. Some argue in a negative relationship between the
abundance of natural resources and growth activity that push the country to
concentrate on the stability and quality of the political system while some
argue that the abundance has resulted in the country concentrating on the
behavior of the government. Furthermore,
governments in most developing countries that are resource-abundant spend their
resource rents on public consumption rather than public investment which is
more conducive to
economic growth (Atkinson, 2003). Gylfason (2001) shows that an increase in
natural resources by 25% points goes with a decrease in the investment ratio by
5% points which in turn decrease economic growth by 1% point.

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