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Table of Contents
Cover
Table Of contents
Preface
History

Section I: After Independence

Section II: Federation with the Netherlands and Parliamentary Democracy

Section III: Old Order

Section IV: New Order

Section V: Reformation

Indonesia Structure

Section I: Form of State

Section II: Form of Government

Section III: Government System

Section IV: Economic System

Section V: Political System

Inflation

Section I: Inflation Background

Section II: Inflation during the old and new order
Section III: Inflation Solution

Preface
2

In order to help increase the amount of enrichment book about Indonesian social studies in the
English language. We the students of Sekolah Hihgscope Indonesia have created this book to
help contribute for the lack of enrichment book about Indonesian socials studies in the English
language. Within this book we have listed and explain about: Indonesias history from its
independence to its reformation era, Indonesias structure and the problem that Indonesia faces
which is Inflation.
We would like to thank our parents, teacher and friends for all the support you have given in this
really short amount of time.
We hope that this Enrichment book will help aid in your studies and will increase your
knowledge about social studies.

Jakarta, September 2015

Kevin Z.M | Sharon. W| Disya. R| Ago. H

History

After Independence Indonesia has a lot of historic events that is really important
and that effects and shapes what the country is now. These historic events are mostly
political and events that are related about the development of Indonesia. To make this
easier to explain we have divided the history into multiple sections, and in each history
section we will make notes, paragraphs and explanations to make understanding easier.
Section I
After Independence

17 August 1945: Ir. Soekarno and Mohammad Hatta proclaim Indonesias

independence.
18-19 Augustus 1945: The PPKI had a meeting to form the governmental system in
Indonesia.

After proclaiming independence, Indonesia immediately held meetings to make the

governmental system in Indonesia.

Indonesias first president Ir. Soekarno proclaiming Indonesias

independence on 17 of August 1945

5 October 1945: The TKR was formed (TKR: Tentara Keamanan Rakyat, at that time
Indonesias military to protect citizens)

12-18 November 1945: Colonel Sudirman was chosen to become the leader of the TKR

and become one of the commanders of TKR.

January 1946 January 1947: The TKR then was renamed into TRI and it wis renamed
again for the last time and it became TNI. ( TRI: Tentara Republik Indonesia , TNI:
Tentara Negara Indonesia. Indonesias military)

Because of proclaiming independence, Netherlands which were occupying us at that

time took that as threat and began to use force on us to stop us from having
independence and so they can take control of our country.

(1945 1946 War to fight for Indonesias Independence)

July August 1947: The first Netherlands Military aggression
Agustus October 1948: The rebellion of the PKI (Communism) party in Madiun
December 1948: The second Netherlands Military aggression
22 December 1948: The formation of the temporary government

In this timeDuring the first and second Netherlands military aggressionthe

they used armed forces and
interventions
to stop us from
Netherlands became
really aggressive
and proclaiming
desperate independence
so that we couldnt have our
independence, within this time there were 2 times where the Netherlands became really
aggressive and we called this event The first Netherlands Aggression and The Second
Netherlands Aggression. Within this event the Netherlands used armed interventions to
stop us from having independence. In the second Netherlands aggression the
Netherlands kidnapped our nations leaders and exiled them to a different part of our
country, so at that time we needed to make a temporary government so that everything
can still run smoothly.

Because of the Netherlands Military Aggressions it then triggered an agreement

where the Netherlands and Indonesia needed to finish this problem once and for all, so
then the Netherlands and Indonesia held a round table meeting in the Netherlands to
finally proclaim that Indonesia is an official country. From this round table conference it
resulted in some major result, one of it was that Indonesia will be an official free
country but they needed to be in a federation with the Netherlands and so Indonesia
became RIS (Repulik Indonesia Serikat). Another big thing was that Indonesia needed to
take responsibility of all of the Netherlands debt since 1942.

Section II
Federation with Netherlands and Parliamentary Democracy

4 August 1949: Indonesia chose who will join the KMB conference in the Netherlands.

(KMB = Konfrensi Meja Bundar, Round table conference)

23 August 2 November 1949: The KMB round table conference has begun in the
Netherlands. From the KMB round table conference it has resulted that Indonesia
became a federation with the Netherlands, and it became the RIS (Republik Indonesia
Serikat, Indonesia became a federation nation can be translated into The United states

of Indonesia Republic)
29 October 1949: RI and FBO signed the agreement of the constitutional tentaf of RIS.
14 December 1949: The entire states leader DPR and all of states of RIS proclaimed
and agreed to make the constitution PIS. (PIS: Partai Indonesia Sejahtra, a

constitutional party that are in charge of the rules in Indonesia.

15-17 December 1949: Ir Soekarno was chosen and became the president of RIS.
20 December 1949: Mohammad Hatta becomes the prime minister
7

23 December 1949: The RIS that was lead by Mohammad Hatta went to the
Netherlands to sign the script sovereignty
On the 23rd of
August to 2nd
November in
1949, Indonesia
and the
Netherlands held
a round table
conference in the
Netherlands.

After the
round table conference with the Netherlands we are now in a federation with the
Netherlands. After the conference Indonesia needed to do a lot of political things such as
signing agreements with the Netherlands, making a constitution, electing a president
which was Ir. Soekarno at that time and electing prime minister which was Mohammad
Hatta at that time.

4 January 1950: DPRD OF Malang made a motion to leave from the country of East

Java and join RI the republic of Indonesia.

21-22 January 1950: East Sumatra joins the RI
30 January 1950: Sukabumi leaves Pasundan and joins the RI
8 March 1950: The RIS government released the procedures of the change of the state.
22 April 1950: Jakarta joins the RI
19 May 1950: RIS and RI agreed to form a country based off the proclamation of

independence on 17th of August 1945.

17 August 1950: The country RIS has been officially dissolved

Around this time a lot of the citizens in Indonesia disagreed about being in a
federation with the Netherlands, one by one states from Indonesia began to join the
8

RI or the Republic of Indonesia instead of the RIS. Slowly states left RIS and began to
join the RI, until in the 19 th of May 1950 where the RIS and RI agreed to form a country
based of the proclamation of Independence on 17 th of August 1945 then finally on the
17th of August 1950 the RIS has been officially dissolved and now Indonesia is known
as NKRI (Negara Kesatuan Indonesia Serikat). Because of this actions Indonesia is
now a free independent nation but by doing this it enraged the Netherlands.

President
Soekarno
proclaiming that
the RIS will be
dissolved and will
become the NKRI,
an
independent
Section
nation that is not
III
in a federation
with The Old
the
Netherlands

Order

29 September

1955: Election for the

members
of Konstituantte/DPR (DPR: Dewan Perwakilan Rakyat)
Within this time Indonesia has started forming political groups that will help aid the
countries with their law development and all sorts of other things related to the counties
development. Another is during this time of change Ir. Soekarno became the president of
the newly found NKRI and Mohammad Hatta which was previously the prime minister of
the RIS became the NKRIs vice president.

5 December 1957: Every activity that is related to the Netherlands has been blocked
and banned

Since Indonesia still has some sort of vengeance towards the Netherlands, anything
related to Netherlands such as books, movies and etc were banned at that time.

1948-1960: Rebelion of DI/TII in someplacces in RI)

9

1950-1958: Rebelion of APRA, Makasar, Republik of South Maluku , PRRI, Permesta

In this time we didnt just fought the Netherlands but we also needed to fight against
certain parts of our countries that disagreed to all of us becoming one nation. Certain
groups and certain part of countries rebelled because they wanted to become their own
independent nation, but after a while those groups and those certain part of those
countries was dealt with.

5 July 1959: The UUD 1945 Is now applied again and the UUD1950 (UUDS) is now
invalid. (UUD: Undang-Undang Dasar, UUDS: Undang-Undang Dasar Sementara)

For the first part of our countries independence we used the UUD1945 (Undang-undang
dasar 1945). The UUD was a constitution for us and every part of Indonesia needed to
follow the rules. But during the time where our nations leaders were kidnapped and
exiled we used another version of the UUD called UUDS1950 (Undang-undang Dasar
Sementara), which was similar like the original UUD but this particular version was
temporary.

15 August 1962: Indonesia and the Netherlands held a meeting in the main
headquarters of the UN in New York. This meeting was to decide the faith of West Irian.
(1950-1969: The effort to free West Iiran from the Netherlands through armed
confrontation and etc)
(14 July 1969: According to agreement with Pepera, West Irian wants to be a part

of the RI and immediately after that it officially become the province of Irian Jaya)
During this time there was a leftover part of Indonesia that never joined the RIS
and or NKRI, and it was West Irian. Indonesia and the Netherlands fought who was
going to get West Irian to the point where they even used armed interventions.
Finally both of them decided what is the faith of West Irian in the headquarters of
the UN in New York. After the meeting according to the agreement with Pepera,
West Irian wanted to be a part of Indonesia and it then became the province also

known as Irian Jaya

1965: Indonesia left the UN, but will join it again soon after.

10

President Ir. Soekarno during the UN meeting in New York

During this time Indonesia to decided to leave UN for specific reasons but then will join
again later on in the future

September 30 1965: The tragic event called G 30 S/PKI, this tragic event is where the
PKI kidnapped and murdered leaders of the military. (G 30 S/PKI: Gerakan 30

September Partai Komunis Indonesia )

October 3 1965: The corpse from the G 30 S/PKI has been discovered
(Along that time a lot of members from the PKI has been captured, killed and
sentenced to death)

Since 1945 there was a party called PKI (Partai Komunis Indonesia) that rebelled against
Indonesia and made havoc all around Indonesia. The PKI was communist party which
tried to teach communism to the people of Indonesia. During one of their biggest
uprising the PKI kidnapped and murdered some of the leaders of the military, their
uprising caused massive havoc throughout Indonesia and will be the cause of certain big
changes later on in Indonesias future. This PKI uprising will be later on called the G 30
S/PKI (Gerakan 30 September Partai Komunis Indonesia)

A National monument located in East Jakarta was created that

is use to remember back on the generals who died in the G 30
S/PKI tragedy. Here are the generals who died in the tragedy:
Soetodjo Siswomiharjo, D.I. Pandjaitan, Siswondo Parman,
Ahmad Yani, R. Suprapto, MT Hardjono, AP Tendean.

11

11 March 1965: Indonesia and its government created the Supersemar (Surat perintah
sebelas Maret) otherwise known as a letter or agreement that made Major General

Suharto to take certain actions for fixing the nations safety.

20 June 5 July 1966: National meeting, from the meeting it was agreed that the PKI
will be dissolved and the teaching of Communism in Indonesia will be banned.

After the events of the G 30 S/PKI Indonesia and its government decided to make safety
measures to ensure the safety of Indonesia and citizens from the PKI and other threats,
so in the 11 of March 1965 Indonesia and its government created the Supersemar (Surat
Perintah Sebelas Maret). The Supersemar was a letter of agreement that made Major
General Soeharto to take certain actions so that he could fix the safety in Indonesia.
During 20th of June until the 5th of July of 1966 Indonesia had a meeting and it was
decided that the PKI will be dissolved and that the teaching of communism was banned.

12

President Ir Soekarno giving Major General Soeharto the

authorization to execute the Supersemar.

Section IV
The New Order

February 1967 March 1968: Soekarno entrusted his government rank and power to
Suharto, Soekarno also withdraw himself from becoming president and elected Suharto
to become president

During this time Indonesia appeared to have two faces of leadership one was
President Soekarno and the other was Major General Suharto, during this time
Soekarnos reputation was falling drastically because of corruption, the G 30 S/PKI
tragedy and other things. Because of Soekarnos failing reputation the citizens of
Indonesia didnt agreed to Soekarno anymore to the point where Soekarno withdraw
from being president and entrusted his government rank and power to Major General
Suharto. From here on out this the start of the new order.

1963-1965: Peace agreement with Malaysia

13

Previously Indonesia and Malaysia had a strong rivalry and hatred towards each
other, Malaysia being in the UN was one of the reasons Indonesia left UN. During this
time Indonesia and Malaysia had a peace agreement and they became friendly/neutral
towards each other.

19-20 September 1966: Meeting in Tokyo, discussing about Indonesia debts with
foreign nations. From the result of the meeting Indonesia debt payment can be postpone
until 1972-1978 and some debt may still be reconsidered

Indonesia has a lot of bets with foreign nations, during this time Indonesia were
having a meeting in Tokyo to discuss with other countries about how will Indonesia
pay their debt.

8 August 1967: Indonesia helped formed and joined ASEAN (ASEAN: Association of
South East Asian Nations)

During this time Indonesia helped form ASEAN, The association of south East Asian
nations. At this time Indonesia consist of Indonesia, Malaysia, Philippines, Singapore
and Thailand.

Five
leaders
from
Indonesia,
Malaysia,
Thailand, Philippines and
Singapore
sat
down
together in the main hall of
the Department of Foreign
Affairs building in Bangkok,
Thailand and signed the
ASEAN
agreement
document.

1967: Indonesia faces a debt as large as 2.2-2.7 billion US dollar, President Suharto
issues economical policies.
(1969-1979 Inflation grows at a rate of roughly 7-17% per year)
14

1973: Indonesia decreased the amount of parties by merging multiple parties into one.
1990: Indonesia experiences a drastic economical growth related to the process of

industrialization
1997: Economical crisis struck Asia including Indonesia. Economical crisis cause by all

sorts of factor such as corruption, collusion and etc causing high cost economy
1998: Indonesias economy has cause a negative growth making the value of Rupiah
drop from Rp2, 300 to Rp17, 000 per 1US Dollar. Dozens of companies are forced to
shut down, unemployment drastically rises and every day stuff and gasoline increase in
cost.

During this time Asia economical crisis started and it affect a lot of South East Asian
countries such as Indonesia. In this time Indonesia experience a lot of industrial
changes. Indonesia also faced a huge debt of 2.2-2.7 billion US dollars. Because of
this Indonesia economy experienced a huge negative effect and it caused all sorts of
problem such as the value decrease of our national currency and the rise of inflation
that will be the bases of the soon to happen Reformation.

Section V
Reformation

12 May 1998: students rebels against the safety forces and the government, their
mission was to bring down Suharto by force and for a reformation. Because of this clash
4 Trisakti College students were shot killed.

15

During the 12th of May 1998, students rebelled against the nations
forces
and it resulted
in the
Trisaktiall
college
19safety
May 1998:
Thousands
of students
fromdeath
all sortofof4colleges
aroundstudent.
Jakarta invaded
The students who died were: Hendriawan, Elang Mulya Lesmana, Hery
the MPR building and demands reformation and that Suharto withdraws himself from
Hertanto and Hafidin Royan
being president.

Thousands of students from all sort of

colleges all around Jakarta invaded
the MPR (government) building for
several days.

16

There were a lot of factors why did the reformation happen, one of the biggest one was
because of Suharto. Since Suharto has the most power and fame in Indonesia he
repeatedly became president for almost 32 years. Another thing was that Indonesias
economy was deteriorating in a very bad conclusion so the citizens of Indonesia finally
had enough and demanded reformation.

21 May 1998: President Suharto withdraws himself from becoming president and the
vice president B.J Habibie became the new president of RI.

President Suharto withdraws from being president and B.J

Habibie immediately replaces him.

-Y. Sri Pujiasturi | T.D Haryo Tamtomo | N. Suparmo, 2013, Ilmu Pengetahuan Sosial Sejarah,
esis, (2013: 4-31)

17

Indonesia Structure

Section I
Form of State

18

The form of state, to know the definition of form of state we need to break it down to
form and state, according to Dictionary the real definition of form is the condition, character or
mode of how something appears, meanwhile the real definition of state is the territory or one of
the territories, of a government. So from this we can conclude that form of state is a condition or
character of a government. Currently there are two forms of state that is Unitary State and
United States (or Federation).
Unitary state is the form of state, which the country has only one central government.
This central government controls and regulates the entire area. There are two types of unitary
state:
1

Centralized System:
Centralized system is one of the unitary state systems that have a system of

government where the central government administered all the issues that are contained
in the country; meanwhile the regions in the country only stay to implement the central
government order.
Just like most system there are advantage and disadvantage. The advantage of
centralized system is that there is uniformity in the rules, because of the uniformity, the
rules also makes the law more simple because there is only one institution (central
government) that has the right to replace it. Another advantage is that income from areas
of the county could be use for the benefit or importance of the state or country. However
Centralized System is not perfect and there are actually disadvantage, because of all of
the work in the government need to be done by the central government and this could
slow the government process. Because of the slow process many regions should wait
the command from the government central and this could increase more problems in the
region. And because central government makes all the rules and the option sometimes
this option doesnt fit with some of the country parts. Most people in the region have no
responsibility to the area and people couldnt change the region like their ideal region.
2 Decentralized System:
Decentralized system is where the head of the regional and local authorities of
the region have more opportunity and power to take care their own region or province.
This system is also known as regional autonomy or self-government.
Just like centralized system there are advantages and disadvantages. The
advantage of decentralized system is that regional development can develop. Because
each region have power to make rules, this regulations and policies could fit local

19

conditions and at the end the government running smoothly. The only disadvantage of
decentralized system is the dissimilarity regulations, policies and constructions
development.

Unitary states itself have its own advantages or functions, Uniformity of law with a central
government that makes all or most of the rules that act as a important role in the country. The
central government also governs most or citizen directly and arrange every region in the
country. National and local leadership in one unit makes coordination easier. Central
government could assist areas when needed. Corruption could also be controlled because the
local government that can corrupt doesnt control all of the area. Meanwhile the disadvantage of
the unitary state is that if there is a problem in a country, this problem would be long to resolved
because most of the power is from the central government, another problem is that the area
authority is restricted by the central government, and the last is that the area is lack or
development due to unity is the country wants.

Unitary states also have unique traits and characteristics this includes, unitary states
power is inside and outside the country and this will be signed by the central government.
Another characteristic is that the state has one constitution, one the head of state, one council
of ministers and one parliament. The last characteristic is that these unitary states have policy
regarding political problem, social problem, cultural problem, economic problem, defense
problem and security problem. The examples of the Unitary State are: Indonesia, Italy, Japan,
Netherlands, and Philippines.

The second of form of state is the United States or Federation state is where the power
is divided between the central government and any part of the state/country or the unity
elements in the country this include: provincial, state, territory, region or even republic.
Federation is more effective when the country has a large geographic region/area. The power in
the federation country is on federal government however state government still has more power
to control and regulate their citizens. The power in the federation country is included in the
federal constitution.

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Federation also have its own function or advantage this include local officials have
greater authority and if this local authorities are very creative and is great in the job, it can
produce better results for these local areas. Areas will also have a natural potential that could
grow faster and with a better result. Meanwhile the weakness of federation state is that regions
could have the possibility of damage because not all division is control and manage by the
central government. Another weakness is that central government and local government can
argue because the opinion difference. The welfare of the people cannot equal or uneven
because the regions in the country have different wealth level. Corruption could also increase
because there are so many people that take care of the countries.

The characteristics of the federation state are that each state has different status and
most likely is not the same. The true power contained in the state however the government is
still higher then them. The head of state has veto power or the power to reject or prevent that
can be proposed to the parliament. Each state has the right to create and develop their laws as
long as it is still the same basis with the central government flow. The last characteristics of the
federation state are that the central government has the highest power of the state for external
affairs and partly domestic affairs. The examples of federation states are: Argentina, Australia,
Austria, Germany, Canada and United States of America.12

But which one of them is the best?

This is based on how big, government strength and diverse does the country is. If the
country is diverse with different culture its better to use federation state because each region
could have different problems and with each of this region is controlled by different government
and they could change the regulation and policy for each regions. Meanwhile if the country
already has similarity in culture and tradition its better to use unitary state because there will be
less problem difference in each region (if there is). Culture and tradition could also connected
1 http://www.terpelajar.com/pengertian-dan-ciri-ciri-bentuk-negara-kesatuan-federasi-dankonfederasi/
2 http://www.smansax1-edu.com/2015/02/keunggulan-dan-kelemahan-negara.html
21

with the size of the country, if the country is big there is high chance that there is diverse culture
and tradition meanwhile if the country is small there is small chance of culture difference.
Government strength will also affect the ideal government form because if the central
government is strong for its country they could use unitary state meanwhile if the central
government is not strong enough for its country its better to divide the job and federation state
is better.

Section II
Government Forms

22

Government forms are known by who have the highest power or the person that decide
the fate of the country. There is so many form of government this includes:

Autocracy is the rule of one or where the government is one person or the autocrat. The
autocrat has all the power and makes all the decisions. There are no laws or constitution
that could restrain or put down the authority of the autocrat. The citizens have no power
to pick like election or to express his desire for how their government operates.
Autocracies also have their own advantages this includes, that autocracy government
has quick decision-making and it could be implemented quickly Autocracy government
also give quick decisions and that autocrat could watch and observe the activities of his
citizen and worker. The disadvantage is that individual rights are usually ignored and
power of the autocrat is often maintained by force. Individual could not work freely and
work becomes less efficient. Some types of Autocracy are include34:
o Theocracy, Theocracy is a system of government where the government is lead
by religious leaders. Theocracy also means that the rules or the government give
decision based on religious ideas. The advantage of theocracy is that there is a
majority in the society causing there are many similarities on them, thus making
theocracy society more unite and its easier to have control. The disadvantages
of theocracy is that the minorities have no legal status and this makes the
majority able to bully and disturb the minority populations because they are
o

different than them.5

Dictatorship, dictatorship or totalitarian dictator is rule by a single political party.
Votes for alternative candidates and parties are simply not allowed, with this
votes is encouraged for the chosen candidate so it basically governments that

chose the candidate and control the country.

Monarchy, Monarchy is a system of government where the government is lead by
King or Queen that inherits the throne throughout the family. There are two types
of monarchy this include: Absolute monarchy and constitutional monarchy.
Absolute monarchy is when the king or queen have unlimited power meanwhile

3 http://classroom.synonym.com/types-government-autocracy-democracy-oligarchy-14100.html
4 https://targetstudy.com/articles/autocracy-advantages-and-disadvantages.html
5 http://apecsec.org/theocracy-pros-and-cons/
23

constitutional monarchy shares the royal power with the elected parliament and
-

prime minister.
Oligarchy, Oligarchy is a form of government where the power of the country is control
by few people of the dominant group of the society. Royalty, wealth, education, or
military control may distinguish these groups of people. Unlike monarch, these oligarchy
controls could change throughout time when their wealth, royalty, education or military
control changes. Sometimes the oligarch may not be the official ruler of the country
however is close or have an influence with the country/government. Oligarchy
advantages are that there is individual freedom, self-empowerment for people and that
voting is really important. Oligarchy disadvantage is that the country will have complete
or partial control with the wealthy, decisions made by a small group, increase of racism

and slow process of the system.67

Democracy, democracy is when the peoples or the citizens have the power in the
country. There is two main types of democracy which is:
o Direct Democracy, Direct democracy is when all citizens have equal power. The
people vote on every decision and the country will be rule by the majority. The
advantage of this type of democracy is that every citizen is involved in the
decision-making and there is high degree of support and loyalty to the country.
The disadvantage is that the minority has nothing to do to involve with the
country and the other disadvantage is that this government take a lot of time
o

because all citizens give input and thus making debate and many more.
Representative Democracy, Representative democracy is when the people or
citizens that elect the representatives to make decision for then. Advantage that
representative democracy has is that people still have power to change the
country, the representatives will vote for the people, people can vote, protest and
ask things that they want. Meanwhile the disadvantages are including that these
decisions could time consuming; representative may not always agree with
constitutes. Lack of involved citizens allows special interest groups to influence
or even dominate representatives. There is two types of representative
democracy:

6 http://classroom.synonym.com/types-government-autocracy-democracy-oligarchy-14100.html
7 http://www.governmentvs.com/en/characteristics-of-oligarchy/model-17-3
24

Presidential system, Is a system of government where the executive

branch exits however it was separate from the legislature. People also

pick the president by voting for the executive.

Parliamentary Democracy is where the

country

was

led

by

representatives of the people and each of this chosen people have power
as long as heir/her party is in power. Executive branch is chosen from
-

parliaments majority party.

Republic, Led by representatives of the people. Each is individually chosen for a set
period of time. Unlike democracy, republic also gives rights to protect the minority from
being bully or oppressed by the majority. Individuals made the decision meanwhile

democratic the whole population as a group held decision.

Anarchy, Anarchy is a form of government without any government. This can happen
after a civil war in a country, causing government to be destroyed and rival groups are
fighting to take the government place. There is no advantage in anarchy only
disadvantages that include corruption, warfare and disorder.

But which one of them is the best?

From these form of government we already know that anarchy is the worst form of
government. The effective and best form of government is based on the people or the
community in the country. Because if the people willing to have one leader that thinks that
he/she always give the right decision for the country, the country will be more efficient because
their willing to do anything for their country. Meanwhile some people wants freedom and control
on their own country thus democracy and republic is chosen by the people, because people
have control theyre more comfortable and this will give more idea to the country and debate
between it that at the end (most of the time) gives the ideal option for the country.

There is also different types of head of country this include, president, prime minister,
king, vice president, and dictator. Presidents have the highest power if there is no prime minister
in the country. Presidents roles are include: Become the symbol of the country; the leader of the
government and give approval to the policy and/or rules that is suggest; decide what the country
25

want to share; allow or denied law making; concern about economy including unemployment,
high prices, and taxes. Meanwhile vice president (United State of America) roles are include:
Replace the president if the president is dead or quit; substituting the president if the president
is traveling abroad; vice president may travel to meet foreign counterparts or state funerals;
responsible on extra presidential responsibilities; vice president could also be the tie breaker;
vice president is also the one that responsible with the senate; ensure laws are executed;
meeting with representative of foreign government; help with the formation; become an
administrator so that the country could use the resources efficiently. Meanwhile king/queen/duke
roles are include: political decision-making; commander of the armed forces and have
ministerial responsibility; daily discussion with ministers; support the ideal of voluntary; become
the symbol of the country. Unlike royal individual, dictator roles are included: dictators have the
highest power (and will always right) and dictators have the decision-making power. Prime
minister will always have the highest power in the country, their roles are include: proposing
laws; discussing policies; examines bills; selecting member to be minister; lead cabinet between
minister when deciding policy; representation the country; decide federal decision; and lead
election. Prime minister could appear along side with royal family and president.

There is three types of government form this include, the form of government that have a
close relationship between the executive and legislative; the form of government that have strict
separation between executive and the legislative and Judicial; the last is the form of government
that have impact and direct supervision from the citizens by representative government system.

Section III
Government Systems

There is two type of government system, which is the parliamentary governmental system
and presidential government system. Parliamentary government is the system of government
26

where there is parliament or the head of legislature. Legislature also holds the highest power. In
this system, the head of government or prime minister is chosen by the members of the
legislature (Parliament). The characteristics for the parliamentary government are include:8
-

Kings, queens, presidents or so as the head of state does not have the highest

government power.
The head of government will be the prime minister
Parliament is the only institution whose members are directly elected by the people

through elections.
If there is an event of a disagreement between the cabinets with parliament, this will
make the head of state considers which one of them is right, if the cabinet is true then

the head of state dissolve the parliament.

Executives are the cabinet that responsible to the legislature or parliament.
Executives also have the responsibility to add and improve the law and policy in the

country.
Parliament is the highest legislative that has the responsibility to check the work of the

government, debate, and to fix the new law.

The executive power of the president is appointed by the legislative. The executive

power of the king is appointed by the constitution.

Legislative have the power to bring down the executive power even though executive is

responsible with legislative power.

The prime minister has privilege to take care the minister that heads the department and
non-department by increase their rank or stop them.

Parliamentary also have advantages and disadvantages. Parliamentary advantages are

include, Because executive and legislative powers are in one party this makes policy-making
is faster and easiest because there is similarity of opinion between the executive and
legislative. Another advantage is that there is a strong and strict supervision from the
parliament to the government cabinet; this supervision makes the cabinet run the
government perfectly. Parliamentary disadvantages are included, The position of executive
division is highly dependent and get so many support from the parliament and this also
mean that the cabinet could be dropped by parliament. The position of the executive branch
cannot be determined because the cabinet can be dissolved at any time. Cabinet can
control parliament if the cabinet members and parliament members from the majority party.
The last disadvantage is that parliament member could be used by executives and other
ministers.

8 http://www.parliament.uk/about/how/role/parliament-government/
27

The second government system is the presidential government system. In a presidential

system the president has the highest position and cannot be imposed by politics. To prevent
president for damage the existing regulations there is a political mechanism to prevent it.
The characteristics of government presidential are include:
-

The president will be the head of government and head of state.

Presidents power is based on people or citizens democracy
President will be elected directly from the citizens or the legislative
The president has the privilege (prerogative) to control the ministers who lead

departments and non-departmental.

Minister is only responsible to the executive power not to the legislative power.
President cannot be dissolve by parliament
The role of the executive and legislative is balance.

The advantage of having presidential government in a country is that the executive division is
more stable because it does not depend to parliament. Another advantage is that the time for
the executive division is clear. The last advantage is that the preparation for the cabinet time of
service is easier to be adjusted. Meanwhile the disadvantages of having presidential
government are that executive power is beyond the legislative oversight. The responsibility
system is unclear. The decision is not decisive and usually long because the decision-making or
public policies need bargaining with the executive and legislative.

But which one of them is the best?

The ideal government system is based what does the country need. If the country needs faster
rules and decision-making but with unstable government system they can use parliamentary
government. Meanwhile if the country needs the stable and more predictable (this also mean
more understandable by the people) they can use presidential government. So if the
government responsible it too much to handle its better to use parliamentary government
because more faster process means that at one point the government responsibility is low
meanwhile if the country have little problem and they want unity in the country its better to use
presidential government because the process is slow, however because the government system
is more stable, people will understand more and if there is mistake in the government system its
easier to solve (because its more stable and more easy to adjust).
28

Section IV
Economic System

Economic System is the how the economy works in the country9. This includes:
-

Traditional, Traditional economics is where the economic system is based on their

ancestors. Traditional economics have their own advantages and disadvantages. The
advantages for having traditional economics are include: 10

9 http://smallbusiness.chron.com/economic-system-types-1129.html
10 http://occupytheory.org/traditional-economy-advantages-and-disadvantages/
29

Production of goods are more effective because this goods will be use for

survival
In this economy system the people know each of their role and the skill and

abilities that they need.

Because traditional economy system was made based on tradition and this

makes the community/society friendlier for them.

Meanwhile the disadvantages are include:
o This economy system is really vulnerable because their goods or supply is based
o

on the weather condition, seasons and etc.

This economy system could change in any time because its based on tradition

and societys believe and culture.

This economy system is for low standard because it doesnt really work in
wealthy life.

Market, Market economic system is based on consumers demand and company supply
and its not under government control. In a pure or complete market economy the
government doesnt control the market price and subsidies this also gives the production
have less regulation to follow (more freedom for them). The advantages for having
market economic system are included:11
o Market gives the producers to produce goods for the consumers demand.
o Market also demand people with useful skills thus people persuade this skills.
o Price system in the market will make the rare goods more expensive and this will

make the rare goods is conserve.

o Competition between businesses to be the best with the economic freedom in it.
Meanwhile the disadvantages of market economic system are included:
o The market economy is unstable and unpredictable.
o Business sometimes needs to increase their demand through advertising.
o Market sometimes doesnt work in some areas.
Command, Command economic system is the opposite of market economic system
because the economy is in the government control. This makes the market not that
important. Unlike market economic system, command economies are less flexible and
react slower to consumer demand. The advantages for having command economic
system are included:
o The production rate could be control and meets the exact demand of the people.
This will make the government able to control supply and demand. Government
can also predict inflation and deflation.

11 http://occupytheory.org/advantages-and-disadvantages-of-command-economy/

30

Able to respond to emergency and/or domestic economic problem because the

government able to control the country economy.

Because government has the economic control theyre able to control the cost,

unemployment, and inflation

Meanwhile the disadvantages for command economy are included:
o Because there is so many goods and people (government) that controls the price
o

and supply this cause mismatch supply and demand in the market.
There is no rewards for the person demands because central government that

control everything.
Mixed, mixed economic system is when the economy is a quality mix between market
and command economic system. Theoretically this economic system will have the
positive of both market and command economic system. The advantages of mixed
economic system are included:12
o More efficient because the resources is partially controlled by government but
o

still can be used by the countrys people.

Because some of the market is controlled by government its more stable then

free market economic system.

Meanwhile the disadvantages of having mixed economic system are included:
o Resources can be unfair or inefficiently because it was a combination between
o

two different economic system.

There is too much competition to have the economy control.

But which one of them is the best?

Each of this economic system has it own benefit in different places. Traditional market
for example work more efficiently in places where they have strong culture feeling and most of
the time in a relative small region. Market economic system works well when the people in the
country really want to take risk and never give up because if the people want to take risk there
will be more competition and because they never give up, the people in the country will develop
on their own. Command economic system is effective when the government have the power
and responsibility to control the economy because if the government cant even deal with their
own country problem they cant control the economy, thus chaos could happen. Mixed economy
is effective when the division is correct with the people action in the market and the ability for
the government to control the market.

12http://www.pierce.ctc.edu/staff/bsorem/Micro/some_advantages_and_disadvantage.h
tm

31

Section V
Political System

Political System: Political or politics according to dictionary is the activities that related with
government action of a country or area. There are 4 main types of political system:13
-

Democracy: Democracy is a political system where the people or citizens govern the
country and themselves directly or indirectly. Direct democracy is when the people make
their decision about policies, rules and resources that affect the community and society
of the country. However direct democracies will not work well if there are too many
people in the country. Indirect democracies or representative democracy is where the

people or citizens elect officials that will represent their vote and choices.
Monarchy: Monarchy is a political system where the power flows in the family so that
each generation will have the power for the country. There are two types of monarch that
is, absolute monarchies and constitutional monarchies. Absolute monarchies is when the
royal family have the right and power to rule over their country or region that they make it

13 https://new.edu/resources/types-of-political-systems
32

into their kingdom. Absolute monarch decrease over time and change into constitutional
monarchies. Constitutional monarchies are when the royal family is also become the
-

symbol for the county and didnt have or little power to the country.
Authoritarianism: Authoritarianism is the political systems when an individual or a group

of individuals have the power in the government and denied personal opinion.
Totalitarianism: Similar to authoritarianism political system but then these peoples or
individual will give less freedom to the citizen because they will control and regulate all
aspects for the citizen and society. When a person has their own personal opinion they
will be killed.

But which one of them is the best?

Similar to government form these political systems are based on the citizen and the
government. If the government doesnt want to work with the citizen, democracy will be less
efficient because the government will not follow the citizen decision and this will cause
disagreement by the citizen. However if the government want to accept the citizen and the
citizen actually have choices that they think good for the country the country will unite more and
the decision by the government will be accept by the citizen. Monarchy is also similar if however
the citizens that need to accept that there is a royal family that is above them that could control
or even become the symbol of the country. Totalitarianism and authoritarianism is government
and authorities do not accept the best when the citizen feels like the government and authority
will also be right and theyre decision-making or even opinion by the society and people. So its
based on how the citizen and government want to act and if they both agree in one political
system this would make the country far better then the citizen and/or government disagree yet
stick on one political system.

33

Inflation

34

Section I
Inflation Background
INFLATION
Inflation is the term to describe a general rise in prices for things like goods and services in a
country. You know how we dont have one worldly currency? The reason for that is because not
every country is on the same level in terms of their economy. Some countries are considered
wealthier than others based on things like their merchandise trade or exports and imports; its all
like one big worldwide market. In this market, the countries are all businesses and customers
buying from each other and trying to sell what theyve got and fighting for rare items to be
purchased, like natural resources that the Earth is lacking and can be found in a limited number
of countries. A countrys economy can be summed up in what is called a GDP or Gross
Domestic Product, which measures the overall value of a countrys goods and services and
when inflation occurs, the GDP goes downhill.
There are several types of inflation. One of them is called Demand Pull Inflation which
happens when demand overtakes supply and the price has to go up to make up for the
imbalance. Cost push inflation is when the production cost skyrockets up and they have to make
35

up for the loss of money. Wage push inflation is when the wage rises, caused by a combination
of demand pull inflation and cost push inflation. Imported inflation is when the exchange rate
makes imports more expensive for buyers.

CAUSES OF INFLATION
Year

Import Volume Index

2010
2011

178.1
199.9
Year

2012

217.7
2011
218.2
2012

2013
Year
2011
2012
2013
2014

2013
2014

Value of the Rupiah for $1

Rp. 8,695
Rp. 9,175
Merchandise Trade (% of GDP)
Rp. 9.735
42.7
Rp. 11,428
41.6
40.5
39.9

There are several factors that could cause inflation including debts to other countries, a low
GDP or GNP, a massive amount of imports, the value of the dollar rising, and the drop of the
value of our currency. It makes sense that debts could cause inflation because raising the prices
of goods and services in a country means that the government income would become larger
and it would be a way to try and make up for the debt of the country. A low Gross Domestic
Product or Gross National Product means that the countrys overall economic progress has

36

dropped and needs to pick up, and increasing prices is a way to do that. Indonesia also
happens to be a country that imports a lot from other countries and it ended up with our country
biting off more than we can chew, meaning that we spend too much money on imports and dont
make enough off of exports to make a profit or at least balance it out. The rising of the dollar
value consecutively causes our own currencys value to drop, meaning that everything produced
by our country and then sold in or out of it is worth less and we make even less money from
exports and spend even more on imports. Every single one of these causes apply to Indonesia
and they have yet to be resolved, which is why prices continue to rise in our country and the
value of our currency proceeds to fall.

EFECTS OF INFLATION
Inflation is mostly viewed as a bad thing for the country overall, but the effects arent negative
for everyone. Take businessmen as an example, when the prices rise, that means that people
have to pay more for their goods and/or services and they make more of a profit from it.
However, the majority of the population suffers. Middle and lower-class people are the ones who
struggle the most and with Indonesia having a high poverty rate, the effects of inflation on this
country turn out to be much worse. The reason people in that section do not gain from inflation
is because while it becomes much harder to get through the day as everything that they could
afford or barely afford before constantly becomes even more expensive and they have to work
twice as hard just to get by because their salaries dont increase along with the prices of
everything else. Its true that people living in poverty who do not have proper jobs dont get
salaries and thats even worse for them because everyone gets caught up in trying to save
themselves and nobody wants to give to the poor because, at the end of the day, its every man
for himself.
Inflation also has an effect on the production department of any business in the country that
sees it as an opportunity. Basically, since the prices for their own products rise they see this as a
chance to produce even more in the hopes that people will continue to buy and they make a
bigger profit than before without having to rise the salary of their employees. However, if a
company overshoots it and decides to hire more employees to increase production speed and
37

then supply takes over demand, they could be in serious trouble because people arent buying
as much as they had hoped and theyre doing the exact opposite of what they had wanted
losing money.

Section II
Inflation during the Old and New Order
INFLATION DURING THE OLD ORDER
Surprisingly, or unsurprisingly because of how bad inflation is right now, this had been going on
for much longer than expected. During the period of the old order, there was something called
stagflation that was happening in Indonesia. According to Investopedia (2015), stagflation is a
combination of stagnation and inflation, which is the condition where the inflation rate growth is
high, the economic growth is low, and unemployment is extremely high and steady. There was a
period between 1949 and 1956 where there was a major political conflict going on and the
government couldnt see to the problems that Indonesia was suffering from, particularly the
social and economic ones, which was mainly the stagflation. Going into the 1950s, Indonesia
got progressively bad and economic conditions were daresay even worse than when the Dutch
invaded. In 1955, plans started to formulate on how to get Indonesias economy back on track,
although by the looks of it we had been unsteady for quite a while. In 1961 there was a plan
38

called Rencana Pembangunan Semesta Delapan Tahun that was meant to have a bunch of
major projects and a few smaller ones that were meant to improve our economic growth, but it
ended up never really getting going and got scrapped, so its safe to say that that didnt work the
way they had hoped it would. After this, things got even worse although it felt like it couldnt get
any more awful. At this point Indonesia was getting hit by something called hyperinflation, which
you can kind of tell by the name, is a state of inflation where the prices of things are hitting the
ceiling and just so completely out of control and increasing so rapidly that it can barely be kept
track of. Hyperinflation in Indonesia went at a rate of about 650% and it can be said that this
was the lowest point in Indonesias economic history so far.
INFLATION DURING THE NEW ORDER
Going into the new order with Indonesias economy in shambles was not easy for the
government, but it appeared they had fought to combat inflation and actually succeeded in part
with a project called REPELITA or Rencana Pembangunan Lima Tahun, which can be
interpreted as a project that spans out over five years. The actual project lasted for much longer
than five years, it was each phase that lasted for five years.
In the first phase of REPELITA, the aim was for 5% worth of economic growth each year. This
phase went on from 1967 to 1974, although it really began in the year 1969, and during that
period Indonesias bottom line was to have enough food, enough clothing, and repair the
infrastructure. The ultimate goal from doing these three things was to improve the agriculture
and provide more jobs for the people of Indonesia.
In the second phase of REPELITA, lasting from 1974 to 1979, the economic growths goal was
to rise by 7,5% each year and the main focus was on the agriculture to provide for the country.
Agriculture was and still is considered one of Indonesias most valuable things because of our
natural resources and because of that the goal was to expand and improve that sector so we
could gain from it.
In the third stage of REPELITA, which started in the year 1979 and ended in 1984, the attention
turned to improving the agriculture enough so that it was a self-supporting system that didnt
need to be tended to as much as before and would be a process that went much more smoothly
so that there could be a steady income from that. Another thing that was spotlighted was the
industries that were able to process raw ingredients into store-worthy things that could be sold
and exported.
39

In the fourth and final stage of REPELITA, it was all about kicking everything up a notch. This
stage lasted between 1984 and 1989 and it was around this period where the efforts made to
improve the populations welfare, push for a more fair and even distribution of income, and
expand employment opportunities were elevated by a far more than before. Since this was the
last stage, it all came down to this and the government had to push much harder for
improvement than before. This meant a final attempt to do the things previously mentioned:
improve agriculture until it became self-supporting and upgrade industries even more to the
point where they were capable of producing their own machinery. So to sum it up, the target of
REPELITA was to get the economy up and running and the way the government saw it, it was
by stepping up our agriculture and industry game.
Overall, it was largely successful and actually managed to overtake the hyperinflation problem,
which seemed near impossible. Unfortunately, as there is usually a bad side, new problems
arose during the duration of after the completion of this program. Corruption shot up during that
era, along with nepotism and collusion. Nepotism is a situation where people who are in favor
have the advantage. For example, a man is choosing between two applicants for a job opening,
one of them is his brother and the other is a stranger. His brother had less-than-adequate
interview results, but the stranger seems perfect for the position. Logically and ethically, the man
should hire the stranger, but he decides to hire his brother just for the fact that theyre related.
Putting it shortly, nepotism is having an unfair advantage because of powerful connections.
Collusion is something that seems to happen a lot here, it is the secret and usually illegal
conspiracy to cheat and deceive others in order to gain for yourself and a group of other people.
Because of these three problems, the people of Indonesia began choosing sides and bickering
about how the situation ought to be handled, thus causing yet another conflict for our nation.
Another downside that followed the success of the project was that there was no plan to follow it
up, which could be why we didnt improve beyond that point and were almost right back where
we started back in the old order and could possibly be headed straight back to hyperinflation if
the situation cannot be handled properly and, if it succeeds in being handled, be kept up so that
history doesnt repeat itself. So far though, it seems that Indonesia has an uncanny way of doing
exactly that.

40

Section III
Inflation Solution
IDENTIFYING THE PROBLEM
So, its clear that Indonesia has always had problems with inflation because of a combination of
causes mainly being an enormous debt, low GDP and GNP, overspending on imports, the
thriving of the dollar, and the consecutive dropping of the value of the rupiah. Seeing as the debt
problem cant disappear, we need to find a way to take care of that. Taking from the REPELITA
project, it seems that our government has to find a way to use what Indonesias got and make
money off of that. If we somehow manage to do that and stop spending so much on imports, we
could slowly repay our debts, raise our GDP and GNP, and attempt to keep up with the dollar
value to avoid further inflation in Indonesia.
POSSIBLE SOLUTIONS
Its actually very intriguing that Indonesia has previously done a project to overtake inflation and
succeeded, but I think that repeating that would be very troublesome and a little too much of a
hassle. Although Indonesia isnt a fully developed country yet, it has still in some ways improved
since the old order as the government isnt constantlyor as aggressivelybeing critiqued or
overthrown by the people of Indonesia with constant suspicion that a plot is being developed
behind the scenes. In my opinion, I think the government doesnt need to start from scratch
again because Indonesia is already aware of how to use our resources for our own good and
weve already got quite a lot of industries that do make money and benefit the government.
Starting from scratch would be a stupid move because if we spent decades trying to rebuild a
country that doesnt need it wed just be wasting time and money and actually be losing
progress. Also, the worldwide market has become much, much more competitive and that is
also one of the reasons why were falling behind, so trying to restart is definitely not the best
idea.

41

Devaluation, in our eyes, seems like an option that could be worth looking into, but is also very
real and very dangerous should it fail to help. Devaluation is the deliberate lowering of the value
of a countrys currency by that countrys government. This may seem like a strange idea at first,
but it goes deeper than just lowering the value of money. Devaluation is a move that typically
targets the increase of exports because of the low prices and decrease of imports because of
the high price. Basically, other countries will want to purchase our exports because of how much
cheaper they are than usual and consumers will be less likely to purchase imports because of
how ridiculously expensive they can be. If this plan succeeds, Indonesia could be able to tone
down the inflation problem and minimize it so that it does not have much of an effect on the
country any longer. On the other hand though, devaluation could be the worst mistake our
country will ever make and result in even more inflation and maybe even a repeat of
hyperinflation. I think that there are three options with devaluation: dont do it at all and find
another solution, try it out as soon as possible and see how it turns out, or wait a few more
years to see if a solution as risky as this is really necessary. Its hard to say which option I think
is the most appropriate, but in this case I think Indonesia should pluck up the courage and be
brave by taking the risk right now because it seems that the situation is going to get much worse
before it gets better, so why not try to fix it before it gets marked as the worst economic hit
Indonesia has ever taken?

The Old Order

-

National Loan Program implemented by the finance minister, Ir . Surachman, with the
approval of BP - KNIP (Badan Pekerja Komite Nasional Indonesia Pusat), conducted

in July 1946.
Economic Conference in February 1946 in order to obtain unanimous agreement in

tackling the economic problems is urgent.

Formation Planning Board ( Badan Perancang Ekonomi ) January 19, 1947.
Gunting Syarifuddin , which cuts the value of money ( sanering ) March 20, 1950 , to
reduce the amount of money in circulation in order to level the price down .

42

Nationalization De Javasche Bank to Bank Indonesia on December 15, 1951 through

Law no.24 th 1951 to function as the central bank and bank circulation.
Devaluation announced on August 25, 1959 decreases the value of money.

The New Order

-

Government involved the determination of the minimum wage and expansion of

employment opportunities.
Economic policy aimed at development in all fields, reflected in 8 equity lines: basic
needs,

education

and

health,

distribution

of

income,

employment,

business

opportunities, the participation of women and young people, the spread of development,
-

and justice.
Implementation of the general pattern of development of long-term (25-30 years)
periodic five-yearly called Pelita (Development five years).

INDIKATOR MAKRO PEREKONOMIAN INDONESIA

PDB

INFLASI

NERACA

PENGANGGURA

PENDAPAT

KEMISKINA

PERDAGANG

AN

AN
ORDE

$ 70

Tingkat inflasi

LAMA

tahun 1966

ORDE

sebesar 650%
Tingkat inflasi

Rp.502,249.558

BARU

US$2,7milyar

PERKAPIT
4,5 juta jiwa

A
US$70

70 juta
orang

US$6,7milyar

6,73 juta jiwa

US$770

tahun 1969

25,9 juta
orang

TRANSI

Rp.1,389,769.7

sebesar 9,9%
8,1 %

US$ 1,8 miliar

7,8 juta jiwa

Rp.

47,97 Juta

SI
REFOR

00
Rp.2,678,664.0

6,3 %

US$ 8,8 miliar

6,76 juta jiwa

2.102.000
Rp. 17,9

37,17 juta

MASI

96

juta

43

SEKAR

Rp.

ANG

6,422,918.230

5,90 %

defisit 327,4

7,42 juta jiwa

US $4500

540 ribu

juta dolar AS
atau sekitar
(Rp 3,18
triliun).

The effect of inflation in Old Order New Order - Now

The inflation during the Old Order reaches approximately 600% per year. The bad economy of
Indonesia during the reign of the old order is also due to the limitations of factors of production,
such as those with levels of entrepreneurial and management capabilities are high, labor
education / skill, the fund (in particular for building the infrastructure that is needed by the
industry), technology, and the ability of the government to develop a plan and a good
development strategy. At the end of september 1965, political instability in Indonesia culminated
in the abortive coup of the Communist Party of Indonesia (PKI). Since the bloody events that
occurred a drastic political changes in the country, which in turn also changed the economic
system adopted by Indonesia during the old order, that of socialist ideas into the semi-capitalist.
On 14 and 15 May 1997, the exchange rate of the Thai baht against the US dollar suffered a
severe shock due to foreign investors' decision-making 'sell' because they are foreign investors
no longer trust the country's economic prospects, at least for the short term. The rupiah
continued to weaken; the New Order government takes concrete measures, which are delaying
projects worth Rp 39 trillion in an effort to offset the limitations of the budget. Rupiah crisis which
eventually transformed into an economic crisis led to a political crisis.
Inflation may lead to the determination of the cost to be too small or even too big. Because the
percentage of inflation is irregular, we cannot be sure what percentage of inflation for a certain
period. As a result, the determination of cost price and the selling price is often imprecise. This
inflationary environment can disrupt the economy, especially for manufacturers.

The control of Bank Indonesia toward the rate of inflation

44

Actually the Government ever managed to control the level inflation in July 2014 under 1
percent. Coordinating Minister for Economic Affairs Chairul Tanjung measures to curb inflation.
The first step according to him is to control the amount of money in circulation. "Money in
circulation we control such a way. One way is to raise interest rates," said Chairul commonly
called CT after lawful gatherings at the office of Coordinating Ministry for the Economy in
Banteng Square, Central Jakarta, Monday (08/04/2014).
The second step is a stabilization of food prices to replenish supplies in the distribution
chain. "This year there is a good coordination between the Ministry of Agriculture (Ministry of
Agriculture) and the Ministry of Commerce (Ministry of Trade) so that the food supplies chain to
be fulfilled," said the man born in Jakarta on June 16, 1962.
The final step, namely preventing traders took the opportunity in the excessive
narrowness. "This year traders took profits are not excessive resulting in price stability," said CT.
These three steps are claimed CT is able to withstand the inflation rate in July stood at
0.93%. "It's a great achievement for the month of July is a time of occurrence of the peak of
inflation due to the fasting month, Eid and school holidays." CT added.
BI control over inflation is actually very limited, because inflation is influenced by many
factors. Therefore, BI is always assessment of economic developments, in particular the
possibility of inflationary pressures. Furthermore, the response of monetary policy is based on
the assessment results. Need to be submitted also that inflation control cannot be done only
through monetary policy, but also macroeconomic policies such as fiscal policy and policies on
the real sector.
For that inter-agency coordination and cooperation across sectors is essential in dealing
with inflation. The inflation rate may be influenced by several things, including the stability of the
Rupiah, the inflation rate is reflected in the rising prices of goods in general.
Factors affecting inflation can be divided into two kinds, namely the inflationary
pressures coming from the demand side and the supply side. In this case, BI just have the
ability to influence the inflationary pressures stemming from the two sides of the demand, while
inflationary pressures from the supply side (natural disasters, droughts, distribution is not
smooth, etc.) totally outside the control of the central bank.

45

Therefore, in order to achieve and maintain a low inflation rate and stable, required the
cooperation and commitment of all economic actors, both public and private. Without the
support and the commitment undoubtedly a very high inflation rate during this time would be
difficult to control. Furthermore, the exchange rate is fully determined by the strength of supply
and demand in the market. What can be done by BI is to keep the value of the rupiah is not too
fluctuate sharply.

Solution
Monetary policy is the policy of the government through the Central Bank as the monetary
authority with regard to controlling the money supply and setting interest rates and credit.
a. Open Market Operation, efforts or measures to give people an opportunity to buy or sell
securities belonging to the state. Sales activities of these securities will reduce
mandatory reserves of commercial banks. Thus, the amount of money in circulation will
be reduced and an increase in prices can be suppressed.
b. Discount Rate Policy, the central bank action to change the discount interest rate to be
paid by commercial banks on loans from the Central Bank and the effect on the decline
in aggregate demand and ultimately the prices of goods will go down.
c. Reserve Requirement Policy, associated with the Central Bank in setting the legal
reserve to commercial banks at the Central Bank. If the reserve requirement imposed by
the Central Bank, the total money supply is going down, then the amount of money
circulating in the community become less so prices was reduced.
d. Selective Credit Policy, regard to the policy of commercial banks in lending to customers
(people) by taking into account elements of character, collateral, capital, capacity, and
condition of economy.

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Fiscal policy involves government spending and taxation arrangements that directly affect total
demand and affect the price.
a. Increase tax revenues, by imposing a high tax rate for the business units that do not
produce the basic needs of society or by wearing new types of taxes.
b. Reducing government spending, with the delay or eliminate expenses that are not a
priority.
c. Conducting government loans, which is to reduce the payments made to the community
and restore it at a later date, for example in the form of a pension.
Non-monetary policy is a policy that is not related to the financial government and the amount of
money in circulation, it is an alternative measure to tackle inflation. Non-monetary policy can be
made through the following instruments:
a. Encourage employers to raise their production.
This method is quite effective considering the inflation caused by the increase in the number
of consumer goods is not balanced with the amount of money in circulation. Therefore, the
governments made it a priority production or provide assistance (subsidy) to the fuel
production sector, the production of rice.
b. Pressing the wage rate.
Nothing but an attempt to stabilize the wage / salary, in the sense that wages are not often
increased because of the increase in the relatively frequent will be able to increase the
purchasing power and in turn will increase the demand for goods as a whole and will
ultimately lead to inflation.
c. Government oversight price and simultaneously set a maximum price.
d. The government distributes directly.
Meant that the price rise does not occur, it is like the government in setting the highest price
(Harga Eceran Tertinggi / HET). Good price controls will not work without supervision.
Supervision is not good will usually give rise to a black market. To avoid the black market,
the distribution of goods must be carried out smoothly, as did the government through Bulog
(Badan Usaha Logistik) or KUD (Koperasi Unit Desa).
47

Real Sector Policy is the policy of the government in stimulating banks to provide more specific
credit to UMKM (Usaha Mikro Kecil Menengah). For example BRI launched this year as Micro
year, suppress the flow of imported goods by raising taxes, and stimulate people to use
domestic products.
Policies related to the output. The increase in output can reduce the rate of inflation. The
increase in the amount of output can be achieved for example with the policy of reduction in
customs duties so that imports are likely to increase. Increasing the number of goods in the
country tends to lower prices.
Policies pricing and indexing. This is done by determining the ceiling price.
Devaluation is a reduction in the value of domestic currency against foreign currencies. If it
happens usually the government to intervene so that the value of domestic currency remained
stable. The term devaluation is more often associated with the declining value of money one
country to the value of foreign currencies. Devaluation also refers to the government policies
lowered the value of its own currency against foreign currencies.
Countermeasures severe inflation (hyper-inflation) reached by way of doing sanering (cutting
the value of the currency). Sanering comes from the Dutch language, which means
restructuring, cleansing, reorganization.
Sanering policies include:
a. Decreasing the value of money.
b. Freezing most deposits in the bank - the bank provided that the frozen deposits will be
changed to long-term savings by the government.
c. This Senering been done by the government in 1960 when inflation reached 650%. The
Government cut the value of the currency denominations of Rp. 1,000.00 to Rp. 1.00.

Conclusion
Inflation is a natural phenomenon that occurs in the economy of a country and is very
difficult to prevent because even in developed countries are also experiencing inflation, the
difference is the rate of inflation. As we know, the definition of inflation is rising prices in general
48

and continuously. Then, what is the cause of inflation? The cause of inflation is the magnitude of
the demand for goods (excess liquidity / money as a medium of exchange). Meanwhile, the
production and distribution is lacking.
The inflation rate in Indonesia over the last 10 years an average of 7.98%. The causes
of inflation in Indonesia, for example, the falling value of the rupiah against the dollar (USD), the
increasing of fuel prices, speculation in the financial and investment sector, and the impact and
influence of the monetary policy of a large country like the United States. During this time, the
level of inflation is indeed dependent on the central bank's ability to cope with the rate of
inflation that occurred in Indonesia.
One way to overcome inflation with government policy, namely through fiscal policy and /
monetary policy. How this is done the government so as not to cause the effects of inflation as
rising prices in general and continuously becomes widespread. Because inflation can reduce a
country's economic growth. Conversely, the measures taken must also be able to prevent the
onset of inflation and deflation.
Meanwhile, the monetary policy can promote growth if the economy can cope with
higher inflation becomes. Bank Indonesia generally rely on the amount of money in circulation
and / rate in controlling price. In addition, Bank Indonesia also obliged to control the exchange
rate of the domestic currency and the exchange rate against foreign currencies, especially the
dollar (USD).
The stability of inflation is a prerequisite for the country's economic growth, which in turn
provide positive benefits for improving the welfare of its people. The importance of controlling
high inflation and unstable, can give a negative impact on the socio-economic conditions of
society. Again, in order to tackle inflation, the government and Bank Indonesia through monetary
policy.

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Writers Bio data

My name is Sharon Stephanie Wenas and Im currently in 9 th grade in the school called
Sekolah High Scope Indonesia TB. Simatupang. My hobbies are reading, writing, browsing the
internet and watching 90s romance comedies.

50

My name is Gusaimas

Matahachiro Hanggoro Himawan Akbar,

but people usually just

call me Ago. Im currently in 8 th grade in

the

school

Sekolah

High

interest of science, space and

Scope

Indonesia TB. Simatupang. I have a fond

math. My hobby is building gundam

plastic models.

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My name is Disya Rahmatiara , I was born in Jakarta on the 22 nd of

August 2001.Im in 9th grade in the school called Sekolah High
Scope Indonesia TB. Simatupang. I want impress my parents and
get good grades. My hobbies are listening to songs and eating.

My

name

is

Kevin

Zavier Mahendra. I was born in Jakarta on

the 15th of October

2001. Im in 9th grade in Sekolah High

Scope Indonesia TB

Simatupang.

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