This is all rather airy-fairy speculation, though, I suspect all of this would have been entirely unacceptable at the time without the benefit of hindsight. As GSD310 said, perhaps not switching to parliamentary democracy in the first place would have been better.
This is pretty much the issue. The creators of the Indonesian Republic never envisioned a system of few parties. The nationalist leaders had, after all, studied in the Netherlands and were influenced by the multiplicity of small parties. Furthermore, it was felt that a system of many parties would better reflect the different ethnic and communal segments of Indonesia. Hence, the Indonesian nationalist movement never developed the organizational cohesion and mechanisms for settling internal political conflict as seen in the contemporary Indian Congress Party and the Philippine Nacionalista Party.
Another noted issue was that most of the big parties had internal divisions, except for the Communist Party. "The Decline of Constitutional Democracy in Indonesia" blames these divisions on "
bapakism" (literally father-ism). The leader (
bapak or father) receives the loyalty and support of his subordinates (
anak buah or children) but the leader must make sure that his subordinates are rewarded generously or the followers would desert the leader. This led to active competitions within parties to maintain the loyalty of personal followers and screw over the other political leaders. Hence, all major parties save for the communists and socialists were lacking in cohesion. I can't imagine this being better if all the small parties were consolidated into the big ones.
Perhaps a reevaluation of some goals could help as well, for example if they focused on the basics over "ambitious social goals" this might help stave off severe economic crises.
It really has to be said that there was no good economic solution at all. Any government is virtually damned to have an economic crisis unless the war of independence was avoided and even then fixing the damage from the Japanese occupation would have taken years. Furthermore, it should be emphasized that these ambitious social goals were demanded by the public itself (ok, maybe the monuments weren't but...). People needed employment and cutting expenditure would have been political suicide. Investment in education was a key for the legitimization of the state - only 10% of Indonesians were literate and only 15-18% had primary education in 1930. Maintenance and construction of new infrastructure was also badly needed.
The only thing that could've had its budget slashed was the military. But that would increase the tensions between the military and the political leadership, especially due to events during the Indonesian war of independence. During the second Dutch 'police action', many in the army felt betrayed by the political leadership who the civilians chose to let themselves get captured instead of following the army into the hinterlands of Java to begin the insurgency campaign.
Furthermore, many soldiers didn't want to be demobilized. They didn't want to leave a good-paying and honorable job to return to a non-white collar job. If the war of independence had been averted, then this might've been avoidable.
Was there any way the 1955 election could've been more decisive?
Probably not. I don't think it's possible for any party to achieve a majority in the election. So another compromise cabinet would have to be made.
Assuming Indonesia stays a democracy, how would the conflicts in Malaysia and East Timor develop? Can they be avoided? What about West Papua?
Can't really speak on Malaysia and East Timor. But West Papua will almost certainly be a point of conflict for Indonesia. Even in 1949, there was enthusiasm in the public to press the Dutch on the ownership of West Papua. The Indonesian government tried to ignore it in the early '50s but when the economy is dominated by Dutch businesses and the rhetoric of 'anti-imperialism and anti-colonialism' is popular, I think that the Indonesian public would eventually demand the government to confront the Dutch ownership of West Papua eventually.