Indonesia – the Troubled Giant

1. What political factors explain Indonesia’s poor economic performance? What economic factors? Are these two related? Starting with President Suharto, after 30 years in office left Indonesia an economic wreck. Internal dissent was suppressed. He also used “crony capitalism” to advance his family’s businesses and friends’ as well. 1997 marked the bottom for Indonesia and the International Monetary Fund gave Indonesia $43 billion. Of course Suharto took this money for personal gain.

The political and economic factors were caused by Suharto. 2. Why do you think foreign firms have been exiting Indonesia in recent years? What are the implications for the country? What is required to reverse this trend? The excessive red tape has driven foreign firms away. It takes 151 days for the paperwork to go through to open a business. The country will suffer because the economy is not being stimulated by would be businesses.

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The strict policies will have to change in order for Indonesia to thrive. 3. Why is corruption so endemic in Indonesia? What are its consequences? One reason is that government bureaucrats’ income is extremely low. They result to bribes to make more money. Also the police are throwing foreign business owners in jail for the littlest things to make a profit off of bribes. This is driving businesses away. 4. What are the risks facing foreign firms that do business in Indonesia?

What is required to reduce these risks? Jail time, loss of income to bribes, and long waits to establish a business are the risks that foreign firms are facing. A radical change is required to reduce these risks. Indonesia has an anticorruption drive which may or may not work. 5. What is happening today? Is Indonesia different or the same? Indonesia has recovered somewhat from President Suharto’s reign of terror, yet the economy is still in shambles.



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