Indonesia

Indonesia’s poor performance is explained by political and economic factors. Indonesia is the world’s most populous Muslim nation and also one of the most ethnically diverse. The richness of Indonesia is its diversity, but it is also a weakness. It can easily trouble the nation with ethnic rivalries.  The transition from dictatorship to democracy led to many economical uncertainties. Although Indonesia is now under a democratic rule but many problems accumulated after living for 30 years under the rule of a dictator_ Suharto. Although the economy is growing but there is a lot of factors contributing for Indonesia poor performance. '    Unemployment is still high at around 10% of the working population. '    Growth in labor productivity has been nonexistent for a decade. '    Foreign capital is fleeing the country, '    Business activities are hurt by excessive red tape. It takes approximately 151 days on average to complete the paperwork necessary to start a business. It's the sort of environment foreign investors’ recoil from. '    High level of corruption from government bureaucrats '    What makes an international business even worst is the extremely poor infrastructure.  Indonesia is an example of how political and economical factors are closely related and how they impact the international business. The challenge for the Indonesian government is to keep the economy certain while attracting foreign investments. □ For thirty years, Indonesia’s economy grew steadily under the ironclad rule of President Suharto – but at the heavy cost of internal suppression of dissent. This suppression of dissent robbed Indonesia’s economy of the vitality and incentives associated with a free-market economy in which individual property owners, who in the process of seeking to accumulate wealth enrich the entire economy and create economic growth. While Indonesia has since overthrown the dictatorial government, corruption and red tape remain rife at almost all levels of government in Indonesia. A World Bank study revealed how excessive red tape in Indonesia hurts business activities: An entrepreneur in Indonesia must wait an average of 151 days to complete the necessary paperwork to start a business, compared to 30 days in Malaysia and a mere 8 days in Singapore, severely hampering the Indonesian entrepreneur’s speed and desire to participate in the economy. In turn, the excessive red tape translates into long lines of government bureaucrats, whose low salaries make it attractive for them to seek a bribe at every step of the business transaction, further distracting and detracting the entrepreneur from legitimate business pursuits. □ In addition to these political factors, Indonesia also suffers from economics factors that hinder growth. Indonesia’s poor infrastructure makes it difficult to conduct business: A poor infrastructure in roads signifies that it is difficult to transport goods and services to the consumers, and may even hinder export-related businesses if companies cannot ship the finished intermediary or final products to their intended customers abroad. The unreliability of the electric grid means that production and even administrative activities can be interrupted at any moment. Together, these inhospitable business climates decrease business confidence in Indonesia, leading to capital flight and a decrease in investments, shaking the very foundation of economic growth. □ The political and economic factors that hinder growth in Indonesia are indeed intertwined. The unfriendly political environment makes it less likely that foreign or domestic capital would be interested in investing in Indonesia because of the business costs associated with red tape and corruption. In turn, the lack in investment feeds the desire of government officials to continue to seek bribes and create red tape in order to supplement their low income due to a stagnant or slow-growing economy.