Asuncion, Angelica Ashley C.

International Business
MBA
CASE 1
The Political and Economic Evolution of Indonesia

1. Under the leadership of Suharto, the Indonesian economy grew

at a steady pace. Why was this ultimately not sustainable?

Under the leadership of Suharto, the rampant corruption and

lack of democracy within Suharto’s government paved the way
for the downfall of Indonesian economy at the time. Suharto
was using crony capitalism in commanding of political system
and most of jobs and common financial problems were went un-
solved. He never to step to solve the common issues with peo-
ple and started dictating them. He was using his office to
help businesses of his supporters and family. Also, the poor
economy planning and not restructuring the current employment
process, most people lost their jobs and no new company in-
vestment or developed in last few decades.

Suharto was also relaxed with his political forces he was

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er as
just clearing only financial debts and never thought about why

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these losses were happening. But Later it reveals that, as the
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country was accumulating massive debts, he was profiting him-
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self by funneling funds through his bank accounts. People in-
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tervened; he was forced to resign.

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2. Since Suharto was removed, Indonesia has grown its economy at

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a slower pace than two other large developing nations, India

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and China. Why do you think this has been the case?

The economy of Indonesia is growing in a slower in compari-

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son to its counterparts due to economic liberalism. Both India

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and China have embraced foreign investments with wide arms

open where Indonesia is sheltering many industries from for-
eign competition by protectionist policies. They consider for-
is

eign investment as foreign invasion. To make matter worse, In-

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donesian government is reluctant to accept market economy and

frequently impose price controls and heavily subsidize certain
goods, most notably gasoline. And Many international companies
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shut down since no immigrates were getting job. Lot of for-

eigners were moved out of country. Lot of inflation since
there was investments were going through all banking, retail-
ers, consumers are started facing losses. The lack of infra-
structure can be a massive discouragement for a potential for-
eign investor and mainly Infrastructure is was not developed
hence there were no foreign investors were interested. The
complete economical infatuation affected Indonesia badly.

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 Asuncion, Angelica Ashley C. International Business
MBA

3. What actions could Indonesia take to improve its economic per-

formance? What impediments might make it difficult for the
government to take these actions?

Indonesian should improve their economic performance, abol-

ishing the protectionist policies are must. They must be more
willing to accept foreign propositions to boost their economy.
Improving Indonesia’s infrastructure will attract more foreign
investors. Privatizing important sectors like – transporta-
tion, banking, telecommunications will alleviate infrastruc-
ture improvement process. It needs to take initiative to get
investments from other countries to get the jobs for local re-
sources. More investments from external companies will create
job opportunities and people will stare rotating money within
country. Indonesia presidents need to take responsibility in
expanding the infrastructure, increasing transportation, gen-
eration of solar power stations or hydro power stations to

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generation 24hrs electricity Need to generate more local em-
ployment.
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Indonesia should start doing privatization on state owned
companies, they need to try to stop corruption which is widely
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affect in the country development since most of state taxes is

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not accountable. The major impediment to Indonesia’s economic

growth is corruption. Corruption is so prevalent that it im-
pedes day to day business activity. Another hindrance to In-
o

donesia’s economic growth would be governments reluctance to

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relinquish authority over different sectors which are cur-

rently run by state owned enterprises. These actions can boost
economically stronger in coming years. The impediments which
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is Indonesia is facing difficulty in improving economy is the

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current infrastructure, corruption from common to political

level. Government will have severe trouble in stopping corrup-
tions and crimes which investors will step back to invest in
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the country
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