ALLEN DAVE G.

STO DOMINGO BSA-3A

1. What political factors explain Indonesia’s poor economic performance? What

economic? Are these two related?

Answer:

The dictatorial rule of President Suharto was the main political factor that led to
the economic decline in Indonesia. His practices of “repressing internal dissent” and
“crony capitalism” brought massive amounts of debt. Even with the rescue package
from the IMF, the corrupt government prevented the money from saving the failing
economy. Economic factors that contributed to the poor economic performance were
foreign investors leaving, factories shutting down and the fall of
stock of foreign direct investment. Alongside the foreign investors, private investors
began pulling out of the “all important oil industry,” decreasing one of Indonesia’s main
sources of income. The transitioning government mixed with the corruption and debt
from Suharto is definitely a motive for investors to discontinue business in Indonesia.
The risks are greatly increased for the businesses with such unstable conditions in the
country. The political and economic factors affecting the economy are certainly
correlated.

2. Why do you think foreigh firms have been existing in Indonesia in recent years?
What are the implications for the country? What is required to reverse this trend?

Answer:

Because the economy in Indonesia was confronted with massive issues, large
corporations determined that it was highly risky to conduct business within the county.
Furthermore it was extremely expensive, due to having to pay bribes in-order to
maintain the businesses. Finally, the police work against the foreign business leaders,
sometimes even leading to incarceration to extort bribes.

3. Why is corruption so endemic in Indonesia? What are its consequences?

Answer:

Government salaries are too low so people working in these positions are more
inclined to take bribes. The police and prosecutors are also involved in the bribes
making it very hard to stop such things from occurring by catching the officials. This
turns many people away from trying to start their own business as it takes on average
151 days to do so. It also turns away many foreign investors as they do not
want to partake in such a long and costly process to enter a new market. All of this in
turn has a negative effect on the economy and the people who live in Indonesia.
 4. What are the risks facing foreign firms that do business in Indonesia? What is req
uired to reduce these risks?

Answer:

Low public infrastructure investments from the government, the limited access to
electricity and modern sewerage facilities, high oil prices, the long amount of time it
takes to complete the paperwork to start up a business, and the high levels of corruption
are all high risk factors facing foreign firms that do business in Indonesia. A foreign firm
needs to have extensive knowledge of the current economic and political ongoings and
ability to import its own resources in order to reduce these risks.