1. What Political factors explain Indonesia’s poor economic performance? What economic factors? Are these two related?
Political factors are corruption and red tape, absolutism and crony capitalism. Economic factors are poor infrastructure and fleeing of foreign companies from the country decreasing the foreign investments in the country and increasing the unemployment rate in the country. The political and economic factors that hinder growth in Indonesia are entangled.
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?
I think the foreign firms started exiting Indonesia due to corruption, business costs, poor infrastructure, unreliable legal system, stagnating economy, uncontrolled crime. Some foreign firms did invest, but eventually they left as all their profits were evaporated by giving bribes to the officials. Even though there was an anti-corruption drive, it had no power and even the political leaders didn’t care as they themselves were so corrupt. Also Indonesia lagged behind its neighboring countries like China, India, Malaysia and Thailand which encouraged the foreign firms migrating to these countries. All these resulted in an economic stagnation increasing the unemployment rate, fall in GDP.
This can be reversed by curbing the corruption, reducing the paperwork associated and speeding up the processes, investing in domestic infrastructure by improving roads and electricity. People should elect good leaders who could bring free market trade and avoid favoritism. Privatizing business processes. Increasing the officials salaries which would make them not to expect corruption.
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