The History of Ministry of Finance

In Indonesia, the history of financial manager has existed since ages ago. From the era of kingdom until the time being, Indonesia has had financial manager to be able to conduct the economic development in its governance. Government financial management covers all assets owned by Governments. The fund itself came from the society in the form of tribute, taxes, customs and excise, and others.

As a part of Indonesia government, Ministry of Finance is an institution, which has important role in conducting economic development. Economic development will run smoothly if it has good administration in managing State’s finance. The important role of the Ministry of Finance is managing State’s finance and assisting the leader in the state’s finance and asset. Therefore, the Ministry of Finance can be considered as the guard of state finance (Nagara Dana Rakca).

BEFORE INDEPENDENCE DAY

The expulsion of the Portuguese conducted by the Dutch made the Dutch post their authority in the Netherlands East Indies, by delegating the authority to the VOC (Vereenigde Oost-Indische Compagnie). VOC, which was led by Governor-General Jan Pieterzoon Coen (1619-1623 and 1627-1629), was given an octrooi rights to print money and conduct of economic policy.

Since 1600s, VOC issued policies to increase the state treasury fund by stipulating the regulations of verplichte leverentie (obligation to submit natural resources to VOC), contingenten (agricultural products tax, restricted the amount of spice plants to increase the price), and preangerstelsel (obligation to plant coffee trees).

In March 1809, after selling the Weltevreden land, Government of Daendels decided to build a palace across the parade ground of Waterlooplein. This palace was planned to be the center of Government and used for the interest of the Governor-General, in order to decide policies. In addition, this building also served as the place of detention.

Government of Daendels was end and it was replaced by Governor Jansen. Governor Jansen had less concern on the building construction, so that the construction did not have any progress during his tenure. After Governor Jansen, Lt. Col. J.C Schultze, an experienced officer who built Societet Harmonie building in Batavi, continued that construction. However, the construction of this palace was once ceased because the authority was switched from Netherlands East Indies to English.

British rule chaired by Thomas Stamford Raffles (1811-1816) issued a new policy, LANDRENT (land tax), by changing the patterns of land tax applied by the Dutch before. Raffles’ expectation by issuing that policy was to make the Netherlands East Indies people have the money to buy British products. The point was to expand market for produced products and make use the product for the people. Raffles’ policy was failed because there was no support from the local king, nobles, and people, who did not understand about money and tax calculation.

Netherlands East Indies was then ruled again by the Dutch after having the English-Dutch treaty. In this period, economic recovery began to implement. As the Governor-General at that time, Du Bus (1826), continued the development of that palace with the help of Ir. Tromp, and it completed in 1828. The building was used as the office of the Netherlands East Indies Government, which was inaugurated by Governor Du Bus himself. In the same year, Du Bus also established De Javasche Bank on the basis of financial condition in the Netherlands East Indies, which was considered to need the control and regulation of payment systems.

In 1836, Van Den Bosch, on his initiative, started enforcing the cultuurstelsel (forced cultivation system), which aimed to produce various commodities that had demand in world markets. This system was the replacement for landrent system, in order to introduce the use of money in the Netherlands East Indies public. Cultuurstelsel and forced labor could introduce a cash economy in rural communities. This was seen from the increasing number of people who performed economic activities. In addition, financial reform had been repeatedly carried out, but it had had not given impact in financial strength.

The following policy conducted by the Government of Dutch in the Netherlands East Indies was laissez faire laissez passer, in which the economy was given to the private sector (the capitalists). This policy was carried out at the insistence of the Dutch Humanist who wanted a change of better fortune for citizen. This new land law, instead of giving better impact, gave more suffering. At this time the Department van Financien was established and located in the Daendels palace because the central Government moved to another place. This building was used as the place for coordinating the task implementation, training, and providing financial administrative support to other places.

Lack of financial experts made the Dutch Government hold a various courses for the Dutch and Natives who were considered capable. The courses held were controller assistant and treasury. The concentration on financial management intended to facilitate control of state revenues and expenditures. Bad economic situation was the main reason for the establishment of departement of financien.

The outbreak of World War II in Europe, which continued to go to the Asia Pacific region, and bad condition of Dutch Government for Japanese invasion made the position of Indonesia as the colony of the Dutch very difficult. Ahead of the Japanese arrival in Java, President of DJB, Dr. GG van Buttingha Wichers successfully moved all the gold reserves to Australia and South Africa through the port of Cilacap.

During occupying Indonesia, Japanese made Jakarta as the central government. Departement of Finance building was a place to do daily financial activities. This building was used as the place to manage finance and decide economic policy conducted by the Japanese. On March 7, 1943, Jan Pieterzoon Coen statue, which was located in front of the Department of Financien, was destroyed by Japan for it was considered as a symbol of the Batavia rulers.

Many Dutch financial experts were captured by Japanese and some experts and experienced people served as finance teachers for sons and daughters of Indonesia. Japanese’s lack of financial teachers made Japanese educate the people of Netherlands East Indies to take financial education.

During 1942-1945, Japanese implemented several policies, such as forced to give all banks assets and performed ordonansi in the form of liquidation orders for all Bank of Netherlands, Britain, and China. In addition, Japanese were also making invasion money in Java Island, which was worth for 2.4 billion guilders up to 8 billion guilders (in 1946). The invasion money conducted by Japan intended to destroy the Dutch currency that had been circulated in the Dutch East Indies.

The focus of the Japanese occupation in the Netherlands East Indies towards the Pacific war led Japanese to conduct policies that made financial crisis. Japan did a massive overhaul in the economic structure of society. People’s welfare fell sharply and food shortages disaster occurred due to the production of castor oil. Japan did the depletion of natural resources and crops, and made productive forces as forced labor (romusha). Hyper inflation that occurred during this period led to an increase in expenditure, while income from taxes and import duties fell dramatically. Policies ala Dai Nippon army was harming Indonesia's population

AFTER INDEPENDENCE DAY

After the Japanese surrendered on August 15th, 1945, Indonesia immediately proclaimed the independence of the Republic of Indonesia on August 17th, 1945 and Jakarta was determined to be the center of Government. At the time being, the Department of Financien building still served as the center of daily financial management activities. The financial economy in the early Independence Day was so bad. High inflation happened due to three applicable currencies in the Republic of Indonesia, namely the currency of the De Javasche Bank, the currency of the Netherlands East Indies Government, and the currency of Japanese occupation. The Japanese currency in circulation, which was around 4 billion, and red NICA money caused high inflation.

Having this economic problem, the meeting was held by BPKKP and BKR in the Surabaya region on September 2nd, 1945. They were aware that aside from maintaining the independence and army, fund was also needed to finance that struggle. In the effort of earning the fund, there was Dr. Samsi, an economist and the movement leading figure who was well known enough in Surabaya. In the first presidential cabinet of RI on August 19th, 1945, Soekarno inaugurated Dr. Samsi as the Minister of Finance. Dr. Samsi had important role in the effort of earning the fund to finance the RI’s struggle. He was informed that in the Bank Escompto Surabaya, there was saving heritage from the Government of Netherlands East Indies which was controlled by Japanese. Closed relationship between Dr. Samsi and Japanese Government made him easier to disburse the fund, so that the fund could be used for struggling. On September 26, 1945, Dr Samsi resigned and he was replaced by A.A. Maramis.

On October 24, 1945, Minister of Finance A.A. Maramis instructed united labour team G. Kolff as a data researcher team to find money printing with relatively modern technology. The result was the printing company of G. Kolff Jakarta and Nederlands Indische Mataaalwaren en Emballage Fabrieken (NIMEF) Malang was considered to meet the requirements. Then Minister stipulated the establishment of the committee of Indonesia Banknote Printing Organizer, which was chaired by TBR Sabarudin. Finally, the ORI (Oeang Republik Indonesia) was first printed successfully. This printing of ORI was handled by RAS Winarno and Joenet Ramli.
On November 14, 1945 in the era of Sjahrir I cabinet, the Minister of Finance was Mr. Sunarjo Kolopaking. Mr. Sunarjo attended the economic conference in February 1946, which aimed to obtain agreement in order to address the problems of production and distribution of food, clothing as well as the status and administration of plantation.

On March 6, 1946, the Commander of AFNEI (Allied Forces for the Netherlands East Indies) announced the enforcement of NICA money in the areas controlled by the allies. This had led cabinet Sjahrir to follow up the announcement of NICA by circulating ORI. Only, the circulation of ORI needed fund. The first step of Sjahrir cabinet was to replace the Minister of Finance by Ir. Surachman Tjokroadisurjo. The main effort conducted by Ir. Surachman to overcome economic difficulties was to conduct the National Loan Program with the approval of BP-KNIP in July 1946. In addition, he also conducted blockade penetration by doing rice diplomacy to India and had contracts with American private companies pioneered by American entrepreneurs who were pioneered by the semi-governmental agency called the Banking and Trading Corporations under the leadership Soemitro Djojohadikusumo. He also was also going through the blockade of Sumatra with destinations to Singapore and Malaysia, by opening trade representative namely Indonesia Office (Indoff).

On October 2, 1946, Mr. Syafruddin Prawiranegara was inaugurated to be the Minister of Finance. Finally, the efforts of publishing Indonesia’s own money showed the result, the issuance of FIRST EMISSION of ORI banknote on October 30, 1946. Government of Indonesia declared that date as the release date of Oeang Republic of Indonesia (ORI), in which the Japanese currency, NICA money, and Javasche Bank money were no longer valid. ORI was proudly accepted by the entire people of Indonesia. That printed currency was signed by Alexander Andries Maramis (15 currency period, 1945-1947).

October 30th was stipulated as the Finance Day of the Republic of Indonesia by the President based on the issuance of the Republic of Indonesia's first emission money, which made the entire people of Indonesia proud. Money is the ultimate symbol of an independent state as well as tool to introduce a nation to the public. To appreciate the services of A.A. Maramis, Department of Financien building or Daendels building was named A.A. Maramis. This building became the center of the work for the Minister of Finance as the head of the Ministry of Finance of Republic of Indonesia during conducting everyday tasks. Along with the need for coordination among units, since 2007, the building for Minister of Finance was moved to Djuanda I building, which is located across the A.A. Maramis building.

Following up the Law No. 39 Year 2008 regarding the State Ministry in conjunction with Presidential Regulation Number 47 Year 2009 regarding the establishment and the Organization of the State Ministry, and refers to the circular letter of the Secretary General of the Ministry of Finance No. SE-11 MK.1/2010 on Nomenclature amendment of the Department of Finance to be Ministry of Finance, so, since 2009, the Department of Finance officially changed its name to be the Ministry of Finance