Risk Analysis of Indonesia

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Contents

1. Background
2. Development challenges present in Indonesia
3. Evidence of the “Dutch disease”
4. Institutions in Indonesia
5. Resource curse in Indonesia? And the risk of becoming an Authoritarian state. 6. Different types of contracts and Recommendation of a suitable contract for the firm.

1. Background
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2.1. Indonesia in brief

Modern day Republic of Indonesia was formerly a Dutch colony since the 17th century. Indonesia was briefly occupied by Japan during the World War II. Although Indonesia declared independence towards the end of WWII it took 4 years of fighting and UN involvement to finally be able to receive their sovereignty from the Netherlands to become an independent country in 1949 (CIA 2013).

What began as a struggling parliamentary democratic system became authoritarian since 1957, when President Sukarno declared “Martial Law” and started his authoritarian regime called the “Guided Democracy”. That again was ended after 12 years by an unsuccessful coup allegedly staged by the communists. After the event the provisional MPR dismissed Sukarno as president and appointed General Suharto as his successor in 1968 as the new leader of Indonesia with a new vision called the “New Order” (CIA 2013).

After suffering the Asian financial crisis of 1997-98, Suharto came under immense scrutiny from the international donor organizations as well as the public rioting on the street which quickly developed into a full-blown “Indonesian 1998 revolution” ultimately leading to his resignation. A free parliamentary election was held in 1999, and Indonesia’s first direct presidential election saw Susilo Bambang Yudhoyono win the election in 2004. He was re-elected to a second term in 2009 and is the incumbent president of Indonesia today. (CIA 2013) *

* Indonesia has around 300 distinct ethnicities but the major ethnic groups are Javanese at 40.6% of the population, followed by Sundanese at 15% and almost 30% of the population has unspecified ethnic identity. Although Indonesian constitution guarantees freedom of religion, the government officially recognizes six religions: Islam at 87%, Protestantism at 7%, Catholicism at 3%, Hinduism at 1.7%, and Buddhism at 0.7% of the population. Interestingly enough, every citizen of Indonesia is required by law to hold an ID card that identifies that person with either one of these six religions, but they are given a choice not be explicit about their religion on their ID card. (Wikipedia 2013) *

* Being the largest economy in Southeast Asia and a member of the G20 with an estimated Gross Domestic Products (GDP) adjusted to purchasing power parity (PPP) of $1.208 trillion (2012 EST) Indonesia ranks at 15 in the world. But when looking at their GDP per capita (PPP) of $5000 Indonesia’s rank plummets down to 157 in the world largely due to its number of population as it stands at 4th most populous country in the world with approximately 234 million people. The GDP composition consists of agriculture (rubber, palm oil, meat, forest products, cocoa, coffee, spices and fish etc.), industry (petroleum and natural gas, textiles, automotive, appliances, mining, fertilizers, jewelry and tourism etc.), and services at 15.4%, 46.5% and 38.1% respectively. Main trading partners are China, Singapore, Japan, South Korea, US, Thailand and Malaysia. Out of 118 million active labors, 6.1% is unemployed and the percentage of population living below the poverty line is 11.7% (CIA 2013). *

* 1.2 Indonesia’s Oil and Gas Industry
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* Indonesia’s oil and gas industry, including refining contributed 7% to the country’s GDP in 2010. Since the discovery of oil in 1885 Indonesia became a “significant and well-established player in the International oil and gas industry” and Indonesia’s oil production ranks at 20th in the world accounting for 1% of the world’s daily production. However, Table 1 shows that production...
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