Indonesia: the Troubled Giant

Topics: Unemployment, Macroeconomics, Economics Pages: 3 (876 words) Published: February 18, 2013
I.Time Context
Indonesia is a large country in the Southeast Asia. It has been in steady growth economically under the leadership of Suharto but experiencing unfair treatment by the government as the president favors those of his colleagues in many aspects. Due to Asians financial crisis debt of considerable value has been incurred and lead to economic downturn. Recovery was in 2004, upon inauguration of a democratic president but wasn’t enough to answer problems on unemployment, corruption, and red tape. Worse still, foreign capital is fleeing the country. The stock of foreign direct investment in Indonesia fell as foreign firms left the nation. II.Viewpoint

The economy of Indonesia deteriorated drastically as a result of political instability, a young and inexperienced government, and economic nationalism, which resulted in severe poverty and hunger. By the time of Suharto’s administration, the economy was in chaos inflation, shrinking export revenues, breakdown infrastructure, factories operating at minimal capacity, and negligible investment. Growth came at a high cost in terms of weak and corrupt institutions, severe public indebtedness through mismanagement of the financial sector, the rapid depletion of Indonesia’s natural resources, and a culture of favors and corruption in the business elite. As a result, the legal system was very weak, and there was no effective way to enforce contracts, collect debts, or sue for bankruptcy. Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade and export restrictions all created economic distortions. Following President Suharto's downfall, the New Order administration brought a degree of discipline to economic policy that quickly brought inflation down, stabilized the currency, rescheduled foreign debt, and attracted foreign aid and investment. But still, lags behind its Southeast Asian neighbors. The considerable...
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