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Did Dutch investments contribute to Indonesia’s economic development?

Foreign investments in the Dutch East Indies during the colonial period could have been of more benefit to the Indonesian economy. But the complicated relationship between the Netherlands and Indonesia in the years after the declaration of independence delayed this, PhD research by Mark van de Water has shown.

Private companies from the Netherlands made considerable investments in the Dutch East Indies between 1910 and 1940. ‘Around a quarter of the total investments by Dutch companies were made in the Dutch East Indies’, says Van de Water. The investments were riskier yet more profitable than domestic investments. Investors siphoned off profits, paid little tax to the Indonesian treasury and paid low rates for labour and the use of land and natural resources.

But Indonesia also benefitted in the long term from the private investments made in the country, says Van de Water. ‘Around a quarter of the profits were reinvested in Indonesia. They were used to expand plantations or build new factories.’ The businesses in some parts of Indonesia also took care of the infrastructure and irrigation and improved housing, education and healthcare. ‘To this day the infrastructure is a legacy of the Dutch private investments in the colonial period.’

Missed opportunities

The positive effects of the investments would have been greater if the Netherlands had responded differently to Indonesia’s declaration of independence in 1945. The Dutch wanted to take over the reins once more from the Japanese occupiers and go back to business as usual. ‘Economically a lot was destroyed in the first years after independence. If the Netherlands had supported independence, a gradual transition to an independent Indonesia would have been possible. Then the picture for economic development would have been much rosier.’ Through their military actions in 1947 and 1948-1949, the Dutch managed to regain temporary possession of factories and plantations. ‘The Netherlands tried to cling to Indonesia but it was a lost cause.’

‘The Netherlands’ stance really slowed things down.’

From 1957, more and more Dutch companies in Indonesia were nationalised, which had a huge impact on economic development. Economic development more or less came to a standstill in the early 1960s, with trade with the Netherlands virtually disappearing. In the mid-1960s, American and British companies took over from the Dutch investors. ‘Then the economic development of Indonesia gradually got back on track, but the Netherlands’ stance really slowed things down.’

Van de Water hopes that his dissertation will contribute to the debate on the effects of the Dutch presence in Indonesia. ‘I hope that a nuanced picture will emerge. The discussion leads to fierce reactions but mainly relies on soundbites.’ He calls for good collaboration between Indonesia and the Netherlands on research into the colonial past. ‘I’m pleased to see increasing opportunities for that, for instance finding sources together and sharing information.’

Text: Tom Janssen
Banner photo: 
Filling petrol canisters at the Royal Dutch Petroleum Company on the east coast of Sumatra (1916). Source: KITLV

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