Friday, November 04, 2011

An explanation of the workings of neo-colonialism through the example of Indonesi

An amazing article that clearly shows the destructive ongoing effects of colonialism.

The reality of colonialism, its goals and its methods, is well-known by most people. During colonial times the European countries used brute military force to subjugate peoples in usually faraway lands, predominantly Asia and Africa, and then organized these lands for the purpose of exploitation. The role of the colonized land became to provide cheap raw materials to the industries of the colonial nation, and to serve as a market for the end products of these industries.
The era of colonialism ended during the 1960’s, as in the West the view that colonialism was morally unacceptable became public opinion and as in the colonized lands resistance against the foreign occupiers strengthened. Independence followed for most of the colonized nations.
Ever since, however, not much has changed for most people in the formerly colonized world. They have remained poor as the wealth of their lands has continued to flow towards the West, instead of towards them.
Therefore today most people in the formerly colonized world realize that “independence” has merely meant the substitution of colonialism for what is now known as neo-colonialism. Under colonialism they had been physically occupied for the purpose of exploitation. Independence had removed the physically occupation, but the exploitation remained – neo-colonialism.
So that neo-colonialism exists is clear to most people, because it can be seen and felt around the formerly colonized world. But how exactly neo-colonialism works, how the West can maintain exploitation of the formerly colonized world without a physical occupation remains a mystery to many. An analysis of the post-colonial history of Indonesia provides important insight into this matter.
“Independence” for Indonesia
Resource rich, the lands of South-East Asia became a target for the Europeans as soon as they realized their existence. Great-Britain ended up occupying what is today Malaysia and Singapore. The lands that make up the Philippines went from the Dutch to the British to the Spaniards before ending up in the hands of the Americans. And Indonesia consists of the lands that remained occupied by the Dutch throughout the era of colonialism.
World War II saw The Netherlands coming under the control of Germany (1940 – 1945) and its colony Indonesia coming under the control of the Japanese (1942 – 1945). This greatly helped the Indonesian nationalist movement headed by Sukarno and Mohammed Hatta, as the Japanese saw for Indonesia a future as a client-state in the then still to be formed Japanese Empire in South-East Asia. The Japanese therefore actively supported the nationalist movement on the main Indonesian island of Java, to the extent that they even provided military training to Indonesian youth in preparation of a national army for Indonesia.
The eventual Japanese surrender in World War II on, August 15 of 1945, caused a temporary power vacuum in Indonesia because at that time the Dutch, who had been liberated from German occupation on May 5 of 1945, had not yet reorganized their colonial occupation of Indonesia. Sukarno and Hatta set out to make use of this power vacuum. They quickly organized the preparation of a Declaration of Independence on the day following the Japanese surrender. And then had this read out loud on August 17, marking Indonesia’s claim to independence.
But the Dutch had different plans for Indonesia. The Dutch economy was thoroughly destroyed by the war and the plan was to exploit Indonesia as much as possible in order to pay for the recovery. So the Dutch organized an army and sent it to Indonesia to suppress the independence movement.
But the war between the Dutch and the Indonesian freedom fighters dragged on, without any side developing a clear advantage over the other. Until, one day, the Americans intervened. Under the Marshall plan the Dutch were receiving large loans from America to finance the post-war restoration of the country. America therefore threatened the Dutch that unless they halted their efforts to bring Indonesia back under their control, the Marshall aid would be stopped [1]. This left the Dutch with no choice but to accept Indonesian independence. And following long negotiations, in 1949 the Dutch finally recognized Indonesia’s independence.
Indonesia’s post-Independence economic history – the Sukarno era
Economically, Indonesia was in a poor state following independence. For one, during colonialism the Dutch had systematically under-invested in the Indonesian economy. Because the aim of the Dutch was never to develop Indonesia but to exploit it, so any Dutch investment in Indonesia was to make this exploitation more efficient and effective. By the start of World War II in 1940, Indonesia had still seen only very little industrialization. World War II took an additional toll on Indonesia’s economy, and as a consequence by 1945 average Indonesian income is estimated to have been not much more than 100 USD annualy [2].
The Americans then placed an additional burden on Indonesia when, as part of the terms of the Round Table agreement between Indonesia and Dutch which the Americans brokered, they forced it to pay the Dutch for independence – 4.3 billion guilders to be exact, and using the gold price as a base this is worth around 150 billion in today’s dollars [3].In addition, the terms of the Round Table agreement stipulated that the Dutch would maintain control over all “modern” sections of Indonesia’s economy, such as industry, mining, plantations, finance and banking, and large scale international trade [4]. This caused the establishment of a “dual economy” in Indonesia, in which the Dutch and Chinese Indonesians controlled the most important and profitable sectors of the economy, with little to no participation of other Indonesians. The new Indonesian government controlled only small scale farming and handcraft, which, due to the usage of outdated modes of production, was barely profitable [5]. Little to no change compared to the times of colonialism, therefore.
In the immediate aftermath of independence one of the main goals of the economic policy of the new Indonesian state was to address this issue and “Indonesianize” the nation’s economy. But because there was no clear understanding of how this was to be achieved, most attempts at it failed. Most of the time because proposed and executed plans turned out to be bad ideas. But very often also because of government incompetence and corruption – how a familiar story.
So by the late 1950’s, little to nothing of this Indonesianization was achieved. Indonesia had only became more indebted internationally, as foreigners doing business in Indonesia avoided paying taxes and the native Indonesians were too poor to pay tax. This caused the Indonesian economy to remain in shambles throughout the 1950’s, with inflation running as high as 30% annually. In the 1960’s things got even worse, as hyperinflation appeared destroying whatever was left of the national economy [6].
This failure to achieve any improvement in the economic situation of Indonesia in the first decade following colonialism had two important consequences. Firstly, it turned political attention away from a liberal, capitalist oriented economic development program to plans more inspired by communism / socialism. For instance, following the examples set by the Soviet Union and China, in 1955 Indonesia too presented a “five year plan”. Secondly, it motivated the Indonesian government to confiscate and nationalize foreign interests in Indonesia. Starting in 1957 Dutch interests in Indonesia were seized and nationalized. Starting in 1963 British firms were nationalized. And starting in 1964 American firms as well. Ultimately, in 1965 foreign investment in Indonesia was completely disallowed with the repeal of the Foreign Investment Law of 1958. The ultimate consequences of these steps remain with us today.
Indonesia’s post-Independence economic history – the Suharto era
This was too much to bear for the Americans. During the height of the Cold War Indonesia’s flirt with communism could not be accepted, and neither could the seizure of American firms. So they began organizing “change” in Indonesia.
Neville Maxwell, a Senior Research Officer of the Institute of Commonwealth Studies, Oxford University, had the following to say on what happened: “A few years ago I was researching in Pakistan into the diplomatic background of the 1965 Indo-Pakistan conflict, and in foreign ministry papers to which I had been given access came across a letter to the then foreign minister, Mr. Bhutto, from one of his ambassadors in Europe (I believe Mr. J.A. Rahim, in Paris) reporting a conversation with a Dutch intelligence officer with NATO. According to my note of that letter, the officer had remarked to the Pakistani diplomat that Indonesia was ‘ready to fall into the Western lap like a rotten apple’. Western intelligence agencies, he said, would organize a ‘premature communist coup … [which would be] foredoomed to fail, providing a legitimate and welcome opportunity to the army to crush the communists and make Sukarno a prisoner of the army’s goodwill’. The ambassador’s report was dated December 1964.” [7]
Tim Weiner in his Pulitzer price winning book “Legacy of Ashes: The history of the CIA” explains how this plan was organized: “(The CIA) had precisely one well-situated agent: Adam Malik, a fortyeight-year- old disillusioned ex-Marxist who had served as Sukarno’s ambassador to Moscow and his minister of trade. After a permanent falling-out with his president in 1964, Malik had met up with the CIA’s Clyde McAvoy at a Jakarta safe house. (…) ‘I recruited and ran Adam Malik’, McAvoy said in an interview in 2005. ‘He was the highest-ranking Indonesian we ever recruited’. (…) Then, in a few terrifying weeks in October 1965, the Indonesian state split in two. The CIA worked to consolidate a shadow government, a troika composed of Adam Malik, the ruling sultan of central Java, and an army major general named Suharto. Malik used his relationship with the CIA to set up a series of secret meetings with the new American ambassador in Indonesia , Marshall Green. The ambassador said he met Adam Malik ‘in a clandestine setting’ and obtained ‘a very clear idea of what Suharto thought and what Malik thought and what they were proposing to do’ to rid Indonesia of communism through the new political movement they led, the Kap-Gestapu. ‘I ordered that all 14 of the walkie-talkies we had in the Embassy for emergency communications be handed over to Suharto’, Ambassador Green said. ‘This provided additional internal security for him and his own top officers’ – and a way for the CIA to monitor what they were doing.”
General Suharto then sent his soldiers to arrest the leaders of the Indonesian Army, and had them killed. He blamed the killing on the communists in Indonesia, and used this as an excuse to eventually push aside president Suharto and take power for himself. He then proceeded with killing Indonesian communist leaders using a list of names provided by the American embassy [8], as well as hundreds of thousands of other suspected communists throughout Indonesia. Ambassador Green later told then American Vice President Hubert H. Humphrey that “300,000 to 400,000 people were slain” in “a blood bath”  [9]. And speaking in Australia in 1973 he said: “What we did we had to do, and you’d better be glad we did because if we hadn’t Asia would be a different place today”. [10]
One of the first acts of general Suharto following his grab of power was to send a team of economists to a conference held in Geneva, Switzerland, named “Indonesian Investment Conference: To aid in the rebuilding of a nation”. The conference was organized by Time Life Corporation of America and, in addition to the Indonesian economists, was attended by representatives of mostly American multinational corporations. Professor Jeffrey Winters of Northwestern University in Chicago studied the conference papers and described the proceedings at the conference in the following manner: “They divided up into five different sections: mining in one room, services in another, light industry in another, banking and finance in another. And what Chase Manhattan did was sit with a delegation and hammer out policies that were going to be acceptable to them and other investors. You had these big corporate people going round the table, saying ‘this is what we need: this, this and this’; and they basically designed the legal infrastructure for investment in Indonesia. I’ve never heard of a situation like this where global capital sits down with the representatives of a supposedly sovereign state and hammers out the conditions of their own entry into that country.” [11] In 1967 the demands of international business were translated into law by Suharto through the passing of the “Law regarding Foreign Investment”.
Indonesia’s post-Independence economic history – the “Reformasi” era
Suharto ruled Indonesia with an iron fist until in 1998 America decided it was time for “democratic change”.
Ever since the situation has only worsened for Indonesia. In 2007 the democratically elected government of Indonesia adjusted Suharto’s “Law regarding Foreign Investment” from 1967 by lowering income tax on earnings from Foreign Investment in Indonesia, exempting Foreign Investment in Indonesia from VAT, and extending the maximum term on land leases (very important in mining and oil & gas operations) from 70 to 95 years.
In 2010, eventually, the democratically elected government of Indonesia introduced a completely new legislation for Foreign Investment in Indonesia replacing the 1967 law, regarding which the American government had the following to say: “An updated Overseas Private Investment Corporation investment agreement that better serves the needs of U.S. businesses was signed [with Indonesia] in April 2010. This agreement replaced a 1967 agreement” [12].
Since1967, in other words, America has consistently been writing the Indonesian laws regarding Foreign Investment in Indonesia, ensuring it meets her interests perfectly.
The outcome – America’s benefit, Indonesia’s loss
Although it is well known that Indonesia is “resource rich”, the massiveness of the Indonesian mineral wealth is often underestimated. The country produces close to 1 million barrels of oil per day; around 72,000 million cubic meters of natural gas per year; around 360 million short tons of coal per year; around 65,000 kilos of gold per year; around 610,000 metric tons of copper per year; and around 200,000 metric tons of nickel per year.

Unit of Measure
barrels per day
cubic meter
short ton
metric ton
metric ton


Using 2010 average prices, on international markets this is worth no less than $95 billion. The oil production is worth around $27 billion per year; the natural gas production is worth around $36 billion per year; the coal production is worth around $20 billion per year; the gold production is worth around $2.6 billion per year; the copper production is worth around $5 billion per year; and the nickel production is worth around $4 billion per year.

A review of the Indonesian State Budget for 2010 makes clear that only a small part of this massive amount of wealth ends up at the disposal of the Indonesian government. In the 2010 budget taxes on oil & gas industry, levies on oil & gas, levies on mining and the income from state owned enterprises totals just Rp171 trillion, namely, or $19 billion. This is less than 20% of the mineral wealth produced.

2010 Indonesian State Budget
Taxes on oil & gas industry
Levies on oil
Levies on gas
Levies on mining
Income from state owned companies

The remaining $76 billion is pocketed by foreign companies, most of whom American. This is roughly 8% of 2010 Indonesian GDP. Repatriation of profits resulting from Foreign Investment in Indonesia is also tax free, it must be noted.

Main players
Texaco (US), Chevron (US), Total (France), CNOOC (China)
ExxonMobil (US), HUFFCO Group (US), Total (France)
Bakrie Group (Indonesia)
Freeport (US), Newmont (US), Aurora Gold (Australia)
Freeport (US), Newmont (US)
Inco (Canada), Sumitomo Metal Mining (Japan)

Contemporary economic research into colonialism indicates that during the height of British rule over India, the British “drained” around 1% of Indian GDP and repatriated it back home. The Dutch drained between 8 – 10% of Indonesian GDP [13]. These figures make clear that from an economic perspective at least, independence has failed to achieve any meaningful improvement to the situation of Indonesia. Economically, Indonesia is as if colonized still.
Idries De Vries is an international management consultant, and an international speaker and author of several publications on geopolitical, economic and Islamic affairs. He is also  a guest contributor for New Civilisation.
The views expressed in this article are the author’s own and do not necessarily reflect New Civilisation’s editorial policy.

[1] “Background Note: Indonesia”, U.S. Bureau of State – Bureau of East Asian and Pacific Affairs,
[2] “Sukarno’s Guided Democracy and the Takeovers of Foreign Companies in Indonesia in the 1960s”, William A. Redfern,
[3] See: In 1949 a troy ounce of gold was worth 31.69 USD. Today it is worth around 1,600 USD, a difference of a factor 50.
[4] Ibidem note 2.
[5] Ibidem note 2.
[6] Ibidem note 2.
[7] “Killing Hope: US Military and CIA interventions since World War II”, William Blum.
[8] “Legacy of Ashes: The history of the CIA”, Tim Weiner.
[9] Ibidem note 8.
[10] Ibidem note 7.
[11] “The New Rulers of the World”, John Pilger.
[13] “Angus Maddison and Development Economics”, Adam Szirmai,

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