The effects and the relations of foreign aid : a case study of Indonesia and its two largest donors, the United States and Japan

Abstract

This thesis is entitled The Effects and the Relations of Foreign Aid: A Case Study of Indonesia and Its Two Largest Donors, the United States and Japan. It examines the effects of foerign aid on Indonesia's political economy and patterns of aid relations between Indonesia and the U.S. and Indonesia and Japan. It is limited to foreign aid commonly defined as Official Development Assistance (ODA) in the New Order government era, especially from 1969-1991.

It reveals that Soeharto regime benefitted from foreign aid inflows both economically and politically, and that aid has been effectively used in Indonesia for development purposes. Indonesia's economy has been growing at a steady pace. Soeharto's government has successfully utilized aid to fulfill its political purposes; Aid has deliberately been directed toward strategic sectors to disempower political opposition and maintain the status quo.

The practice of aid relations is based upon the mutualbenefit principle. the U.S benefits from exteding its ODA to Indonesia by maintaining Soeharto's Indonesia in its political orbit. Japan benefits from ODA to Indonesia by maintaining natural resources supplies inflows, markets for its products, and keeping its commercial interests flowing, stable, and secure. The study predicts a different direction and tendency towards Indonesia by both the U.S. and Japan in the post Cold War era.