Assessing Indonesia's sustainable development: long-run trend, impact of the crisis, and adjustment during the recovery period

We adopt the definition of sustainability as “non-declining welfare per capita”, and measure genuine savings and change in wealth per capita as indicator of weak sustainability. The results suggests that the overall trend in sustainability as measured by changes in wealth per capita had shown that the Indonesian economy during the last twenty years had not been on a sustainable path. Despite this, sustainability had been on an improving long-run trend due to the restructuring of the economy away from oil and gas sector, towards more reliant on secondary and tertiary economic activities. However, the need for more appropriate approach in managing mineral, forest resources depletion, as well as environmental degradation caused by industrial sector’s pollution is called for as they had rapidly becoming a growing problem. Measures of sustainability during the economic crisis and its adjustment period clearly show that the crisis had adversely affected the positive trend in sustainability through a combination of reduction in savings rate and increases in natural resources depletion. This has rephrased the importance of economic growth in the context of sustainable development, and provided empirical evidence that economic crisis had created incentives for more rapid natural resources extraction that could endanger sustainable development. Relevant policies to help address both problems are discussed.