In the early 1950s the Government of Indonesia (GoI) issued Benteng program (translates to fortress program), stating that only indigenous Indonesians (pribumi) were allowed to have licenses to import certain items classified as "fortress" items. During its implementation, this rule gave birth to the term "Ali Baba", referring to underground trade activities with co-operation between Chinese businessmen and native Indonesians who have connections in government bureaucracy.
Presidential Regulation 10 of 1959 (Indonesian: Peraturan Presiden Nomor 10 tahun 1959) was a law directive issued by Indonesian government and signed by Minister of Trade, Rachmat Mujomisero. The law prohibited foreign nationals from doing retail business in rural areas and required them to transfer their businesses to Indonesian nationals by 1 January 1960 or relocate to urban areas. This directive was approved by President Sukarno. The rule became controversial since its implementation resulting in several people being killed in West Java (also known as racial riot of Cibadak) and triggered a huge exodus of Chinese Indonesians back to China. Although the regulation merely mentioned that only "foreign citizens" were required to do the relocation and closure of business, the law affected many Chinese nationals and Chinese Indonesians. From the 86,690 foreign business retailer listed, about 90 percent of these were Chinese.
Right after the Indonesian Independence in 1945, the Indonesian people was overwhelmed by the euphoria of "freedom" and took over a lot of foreign companies: this action was referred to as "Anti-Dutch sentiment". Among others, one was a Dutch company Koninklijke Paketvaart-Maatschappij (KPM), a company serving in sea transportation from Netherlands to Indonesia. Marhaen, a labour group that later on become a political party, took over this company. Other foreign capital seized were oil fields, by the oil labourers claiming themselves as "Laskar Minyak" (The Oil Defenders).
After a while, the Government of Indonesia realised that unskilled and inexperienced Indonesians were unable to run the company. The Indonesians, referred to as Kaum pribumi, also did not have enough capital, and it was almost impossible to compete with foreign investment and the Chinese capital (before independence, the ethnic Chinese had more chances to do business from colonialist ruler). These companies suffer losses after the seizure. As a solution, the Government of Indonesia signed an agreement during Dutch-Indonesian Round Table Conference in Den Haag, Netherlands, which stated that the government of Indonesia would return all seized foreign investment assets to its previous owner. In return, to strengthen up the weak Indonesians (pribumi), the Government of Indonesia had the right to issue a law or directive to protect the national interest and those who were "economically feeble".
On 19 March 1956, during Indonesian National Importer Congress in Surabaya (Kongres Importir Nasional Indonesia), Asaat Datuk Mudo made an opening oration that the Chinese had become monopolistic in doing their business by closing all possible entry routes for Indonesian nationals to join the trade market.