Qstn 1: What Political factors explain Indonesia’s poor economic performance? What economic factors? Are these two related?
Indonesia which is the fourth largest country in the world is arguably among the worst economies of the century. President Suharto’s three decade dictatorial regime could be held responsible for the struggling current economic status of the country. Despite his exit from power in 1997, the country has not been able to recover from the mess left by the past dictator. The countries currency has lost more than 70% of its value (Wahyuni & Ng 2012). In addition, most financial institutions have gone out of business due to losses and debts.
The first political factor is corruption in government branches that is motivated by poor salaries. The country is infamous of the bribery that takes place in every government office and every other official. Efforts have been made in the recent past to curb this vice but this has been met with poor cooperation by government officials. Another political hindrance is the red tape sense of running the country. The country has had very little bureaucratic conformity like in processing business permits (Hill 2013). Due to the Muslim majority religion in the country, many government branches suffer from absolutism. This has led to different morality issues that seem to tare the county apart. Finally is the crony capitalism (Hill 2013). The leadership in the past regime was known to favor a minority thus the minority accumulated wealth while the majority suffered.
Political and economic factors are related in every point and matter. As stated above the political environment affects the country’s economy. This is due to the poor investment and entrepreneurial spirit that characterizes the larger population of the country as well as foreign investors.
Qstn 2: Why do you think foreign firms exited Indonesia in the early 2000’s? What are the implications for the country? What is required to reverse this trend?
The Indonesian environment is very thirsty for investment and new business. This is because the opportunities are very attractive to foreign investors. This factor is regarding the unlimited value of investment as a countries policy. The country has tried to install incentives to motivate foreign investors. However, these factors have not materialized enough foreign investors despite the motivations.
Geographically, Indonesia is located at a very good position since it borders Australia which is a thriving economic nation. Counties similar to Indonesia like Malaysia and India have hard exemplary performance in their GDP due to the presence of foreign investors like Australia yet geographically they are farther located (Wahyuni & Ng 2012). The growth in these countries have been significant and also in many more nations. Despite these motivating and arguable better inviting factors, Indonesia has had foreign investors streaming out of the country for the last decade. It is speculated that the political climate of the region is responsible for this activity.
The first reason why most investors exited the country is corruption. The rampant vice is detected in so many government offices especially the police. As such many investors spent so much money bribing officials this failing to make for profits. The red tape character has also pushed away many investors. The 151 waiting day period could be diverted as profit making days thus investors opt for other friendly countries like Malaysia which has 8 days (Hill 2013). Other factors include high crime rates, poor legal systems and poor infrastructure.
Qstn 3: Why is corruption so endemic in Indonesia? What are its consequences?
Like many developing countries, Indonesia is crippled by corruption in almost all government office. Research has shown that corruption is mainly caused by poor economic conditions of a nation. The economic climate of the country in question does not prove otherwise. The country has a very large unemployment rate thus very little economic returns (Wahyuni & Ng 2012). Since the country had been in a dictatorial regime for very long, the morality of government offices was questionable right from the beginning. Crony capitalism also did not assist this situation. Nepotism and bribery had been the factors that determined the processing of government issued documents, permits, and businesses of all kinds. Since the fall of the dictatorial regime, most have been reluctant to let go of this past habits.
These habits can be attributed to the poor salaries issues to most government bureaucrats. Most of them view as their right to receive bribes in order to perform tasks that were otherwise supposed to be performed freely. The government has tried to curb the vice through drives and campaigns but all these have not improved the situation (Wahyuni & Ng 2012). This is because the government needs to first improve the pay package of its officials in order to eradicate this vise successfully. Notably, some government officials might be willing to change but since the bribes help fend for their families, they are reluctant to follow the campaigns been run the media.
Corruption has been responsible for the economic situation of the nation. Foreign investors have been noted to leave the country due to the large bribes they are forced to pay in order to run business at all in the nation. Foreigners have also been humiliated and threated by being thrown into prisons due to failure to pay bribes to government officials. Due to this hostile environment, the consequences of corruption have been felt even after the democratic regime was put in place (Hill 2013).
Qstn 4: What are the risks facing foreign firms that do business in Indonesia? What is required to reduce these risks?
After the dictatorial error was over in the country, many people were hopeful that the environment in Indonesia would be more forgiving and this included foreign investors. Many foreign investors entered the country with the hope that the region was ready for change and development. After some period in the country, most were disappointed due to the risks they faced in the country. The continuing habits of the Indonesia government officials put the foreigners at a vulnerable position and many wondered if they would be able to make profits in the region (Wahyuni & Ng 2012).
Hill, C. W. L. (2013) international business (9th ed) Macgraw Hill Higher Education.
Wahyuni, S., & Ng, K. K (2012) Historical outlook of Indonesian competitiveness: past and current performance. Competitiveness Review: An International Business Journal incorporating Journal of Global Competitiveness, 22 (3) 207 - 234