On Independence the new Indonesian Government did not begin with a clean slate. In the case of interisland shipping the old slate was actually re-endorsed. Under the Round Table Agreements the new government had to concede, as a condition of Independence, the continued rights of the Dutch flag KPM which held the virtual monopoly of modern interisland shipping. Breaking that KPM monopoly thus became almost an obsession of Indonesian nationalists. The result was a protracted stalemate, not broken until the end of 1957, when an attempted nationalization threw the industry into chaos. The nature of the industry today, and the government's regulation of it, can be understood only in the light of these historical circumstances.

This chapter therefore attempts to sketch the background to the development of the industry both before and after Independence. The first section shows that, as early as 1850, a monopoly of interisland steam shipping was virtually concomitant with government contracts for the subsidized carriage of passengers and mail, In 1891 the contract was taken over by the KPM. The second section considers the impact of the KPM upon the industry. The rest of the chapter deals with the evolution of government policy after Independence in three sections: Indonesianization (1949-58), Guided Economy (1958-66) and the New Order (since 1966).

PRELUDE TO THE KPM

Three events profoundly affected die pattern of shipping and trade in the Indonesian Archipelago over the course of the nineteenth century: the foundation of Singapore in 1819, the opening of the Suez Canal in 1869 and the commencement of services by the KPM in 1891.

Geographically strategic, exempt from customs duties and secure from the depredations of Dutch and Malay rulers, Singapore acted as a catalyst on long-depressed regional trade. Preoccupied with the exploitation of Java through the Cultivation System, the Dutch were slow to develop economic interests in the Outer Islands, where, in the mid-1830s, there were still only fifteen Dutch settlements.