During the 1970 decade the Indonesian economy grew at unprecedented high rates after a long period of relative stagnation. It is commonly assumed that this significant improvement in growth performance is largely explained by the rapid growth of oil exports from 1971 to 1978, during which period petroleum's share in total export earnings rose from 39 per cent to 64 per cent. During this period, petroleum exports (in dollar value) rose at an average annual rate of 43 per cent, compared to 30 per cent for non-petroleum exports. Thus, even during the period of rapid petroleum export earnings growth, other exports also grew at a rate far above their long-term trend.

Since the end of World War II, Southeast Asian economies have grown at widely diverging rates. Consistent and relatively rapid growth has occurred only in the Philippines; in that country rehabilitation from World War II was completed relatively early and the economy has gone on to provide gains in per capita real income, though at a falling rate. In Thailand and Malaya, rehabilitation and growth have occurred, but progress has been unsteady. In Burma, Indonesia, and the Indo-Chinese countries of Laos, Cambodia, and Viet Nam progress has taken die form primarily of restoring prewar levels of per capita production; it is unlikely that gains above prewar levels have been achieved.

An assault upon the massive problem of economic stagnation fundamentally requires the pursuit of three kinds of basic social and economic changes. First, and perhaps most important, a society must either mobilize domestic savings or attract foreign financing in order substantially to raise its level of investment. This is the problem of financing. Second, these resources must be employed to change production functions in important sectors of the economy to provide increased yields from the utilization of the country's economic endowments. This is the problem of technology. Third, the society must revamp its institutions in such fashion that high levels of savings and investment are perpetuated and the search for new and more productive techniques of production—innovation—becomes a basic social propensity. This is the problem of institutional change.

The Struggle to consolidate the gains of Indonesian independence has been dramatically reflected in the fiscal field. In the six years since the transfer of sovereignty from the colonial masters to the new Indonesian Republic, the central government has striven for an unprecedented degree of centralization of fiscal functions. What has emerged appears to be the broadening of central responsibility for expenditures, particularly on Java, without corresponding increases in revenues to meet these new responsibilities. The problems of sharing with localities these responsibilities and the resources to finance them have received much thought but little action. Virtually no attention has been given to the ways in which local governments might contribute to Indonesian economic development by utilizing the resources available to them. The case for greater decentralization of Indonesia's fiscal system is based on the argument that the rate of economic growth could be accelerated by the extension of greater fiscal autonomy to local levels of government and by more effective coordination between central and local development plans, particularly on the matter of financing.

It is useful to assess the effect of Nanking fiscal policy on the Chinese economy since we are once again in the strategic position of rendering aid and advice to under-developed areas. (Nanking fiscal policies were predominantly repressive of economic development; they were not designed to alleviate the traditional economic burden on the peasant nor to promote the growth of industry.)