Group Assignment Group 8

INB372

INB 372
Section- 2, Group-8
Submitted to- Fahad Feroz
Lecturer, North South University

Name ID
Fariha Mehzabin Noshin 1821468030
Fahmida Jahan Mithila 1911732630
Khaled Khandoker 2111683630

Submission date: 17/08/2021

Group Assignment Group 8
INB372
Answer to the question 1

Under the leadership of Suharto, the Indonesian economy grew at a steady pace. Why was this
ultimately not sustainable?

 Suharto's government allowed the Indonesian economy to expand, but only on the
condition that enterprises favored by Suharto expanded. He gave the governmental
funds to members of his family or kept it to himself. He did the same thing with the
money from the IMF's bailout package, which was supposed to save the country from
bankruptcy. Due to his own greed and abuse of power, he was compelled to quit.
Suharto subsidized these businesses in order to keep the economy going, but the cost of
the subsidies finally ruined the economy and led to large debts for the country. Because
property rights were not guaranteed by the government, citizens did not have strong
incentives to work hard in order to make a living. The cost of subsidizing increased as
a result of this inefficiency, as did the economy's downturn and eventual collapse.

Answer to the question no 2

Group Assignment Group 8
INB372
Since Suharto was removed, Indonesia has grown its economy at a slower pace than two other
large developing nations, India and China. Why do you think this has been the case?

 Due to economic liberalism, Indonesia’s economic growth rate is slower than its peers.
(Economic Liberalism, 2021) India and China embrace foreign investment with open
arms, and Indonesia protects many industries from foreign competition through
protectionist policies. They treat foreign investment as a foreign invasion. To make
matters worse, the Indonesian government is unwilling to accept the market economy,
frequently implements price controls, and heavily subsidizes certain commodities,
especially gasoline. I believe that the economic growth of Indonesia is slower because
of the oppression of the freedom of the citizens and the news. The same is true in
China, but they are more open to foreign investment and can establish a functional
infrastructure. In addition, Indonesia did not concede economic liberalism and
protectionist policies prevented foreign investors from doing business in Indonesia.
The Indonesian government believes that foreign companies and investors will take
resources from the country and plunge the country into poverty. Due to protectionist
policies, the market was not opened, causing a drop in innovation and
entrepreneurship. After being liberalized by Suharto's leadership, important sectors
such as agriculture and infrastructure such as transportation and telecommunications
were controlled by inefficient state-owned enterprises. The lack of privatization is one
of the biggest mistakes the Indonesian government of may make after Suharto's
resignation. In addition, the property rights of 4,444 citizens are not protected as in
other countries. In order to strengthen the economy, property rights must be protected.
Due to corruption in Indonesia, the economic growth rate is also lower than India or
China's. Tax and profit losses caused by black market activity and corruption have a
significant impact on growth rates. Another important aspect of that needs to be
emphasized is that high logistics costs make the development of 's economic activities
more difficult, and lacks participation in globalization. (International business VS.
Globalization,2021) They can gain 's lead by using the technologies they have
developed. international companies closed down because no immigrants found jobs.
Many foreigners are transferred abroad. Since all banks, retailers and consumers
started investing, the rate of inflation has been high. The lack of infrastructure may be
a huge obstacle to potential foreign investors, mainly because the infrastructure has not
been developed, so there are no interested foreign investors. The full-scale economic
collapse hit Indonesia severely.

Answer to the question 3

Group Assignment Group 8
INB372
What actions could Indonesia take to improve its economic performance? Broadly mention all
the points with proper rationale.

 To improve economic performance of Indonesia it is necessary for them to eradicate

protectionist measures. Indonesia need to open up to the world market and begin
trading in other nations to improve the economic position. they need to be more
prepared to accept foreign propositions to grow their economy. (Elias,2021) Developed
infrastructure of Indonesia will attract more international investors. It will alleviate the
process of improving infrastructure by privatized essential industries, such as transit,
banking, telecommunications. Government must take action in order to obtain
investment from other countries to secure local resource employment. Foreign
investment will create jobs and people stare at money rotating across the country.
Indonesia presidents must take responsibility for infrastructure development,
improving transit, solar generating or hydro power plants to generate electricity within
24 hours. In areas which are crucial to infrastructure, the Government should enhance
and promote the privatization of state-owned firms. (Indonesia Maintains Steady
Economic Growth,2019) The new President Widodo's strategy on boosting public
infrastructure is beneficial and has to be continued. In addition, the subsidy cost
reduction should be decreased, which can also be done by privatization. As corruption
in Indonesia remains a major problem the government should raise the penalties for
corrupt people. In order to consistently look for corrupt persons in the Government and
eradicate them, the government should implement specific techniques. All this takes
time since changing an entire country quickly is not easy.

Answer to the question 4

Group Assignment Group 8
INB372
What impediments might make it difficult for the Government to take these actions?

 Indonesia must begin to privatize state-owned enterprises, aim to end corruption,

which is widely affected by the country's development, as most state revenues are not
liable for this. Corruption is the biggest hindrance to industrial growth in Indonesia.
Corruption is so rampant that daily business activities are hindered. The governments'
reluctance to abandon their power over the numerous sectors currently run by state-
owned companies is another obstacle to economic growth in Indonesia. In future years,
these activities can enhance economically. Indonesia is likely to become one of the
world's top ten economies by 2025. (What are the key steps to economic growth in
Indonesia? World Economic Forum) In any event, the main factors limiting it are bad
streets, a lack of beautifully flowing water, and poor road lighting. An evaluation
undertaken by the Indonesian government, which covered about 90% of all regions,
discovered a significant possibility in the Infrastructure division. (What are the key
steps to economic growth in Indonesia? World Economic Forum.) Poor infrastructure
is increasing the cost of conducting business and diminishing competitiveness,
according to 38% of 12,391 private organizations, which are mostly small and medium
businesses. Individuals had power outages three times per week and water flexibly
interference two times per week. (Rajah,2020) In the less populated districts, the
situation is even worse. Reforms in the banking sector, the emergence of Jakarta as a
leading metropolis, education reforms, and land and labor policy changes are all factors
that can help Indonesia accelerate its growth. Improve poor infrastructure, reduce
corruption, and preserve social harmony between diverse communities are some of the
challenges it must face.

Reference
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Zimmermann@stlouisfed.org, & Noone, S. E. & C. (1970, January 1). The growth and
development of the INDONESIAN economy, by Stephen Elias. RBA Bulletin (Print copy
discontinued). https://ideas.repec.org/a/rba/rbabul/dec2011-04.html.

Indonesia maintains steady economic growth in 2019. World Bank. (n.d.).

https://www.worldbank.org/en/news/press-release/2019/07/01/indonesia-maintains-
steady-economic-growth-in-2019.

Encyclopædia Britannica, inc. (n.d.). Suharto. Encyclopædia Britannica.

https://www.britannica.com/biography/Suharto.

Investments, I. (n.d.). Suharto's new order: Development of INDONESIA under authoritarian

rule. Indonesia. https://www.indonesia-investments.com/culture/politics/suharto-new-
order/item180.

Economic liberalism. Economic Liberalism - an overview | ScienceDirect Topics. (n.d.).

https://www.sciencedirect.com/topics/social-sciences/economic-liberalism.

International business VS. Globalization ... - JSTOR. (n.d.).

https://www.jstor.org/stable/27801311.

Written by Avinash Boodoosingh, D. (n.d.). What are the key steps to economic growth in
Indonesia? World Economic Forum. https://www.weforum.org/agenda/2015/04/what-
are-the-key-steps-to-economic-growth-in-indonesia/.

Rajah, R. (2020, January 28). Indonesia's economy: Between growth and stability. Lowy
Institute. https://www.lowyinstitute.org/publications/indonesia-economy-between-
growth-and-stability.