What Political Factors Explain Indonesia's Poor Economic Performance? What Economic Factors? Are These Two Related?

Topics: Economics, Investment, Entrepreneurship Pages: 2 (591 words) Published: September 23, 2012
1. What political factors explain Indonesia's poor economic performance? What economic factors? Are these two related?

For thirty years, Indonesia’s economy grew steadily under the ironclad rule of President Suharto – but at the heavy cost of internal suppression of dissent. This suppression of dissent robbed Indonesia’s economy of the vitality and incentives associated with a free-market economy in which individual property owners, who in the process of seeking to accumulate wealth enrich the entire economy and create economic growth. While Indonesia has since overthrown the dictatorial government, corruption and red tape remain rife at almost all levels of government in Indonesia. A World Bank study revealed how excessive red tape in Indonesia hurts business activities: An entrepreneur in Indonesia must wait an average of 151 days to complete the necessary paperwork to start a business, compared to 30 days in Malaysia and a mere 8 days in Singapore, severely hampering the Indonesian entrepreneur’s speed and desire to participate in the economy. In turn, the excessive red tape translates into long lines of government bureaucrats, whose low salaries make it attractive for them to seek a bribe at every step of the business transaction, further distracting and detracting the entrepreneur from legitimate business pursuits. In addition to these political factors, Indonesia also suffers from economics factors that hinder growth. Indonesia’s poor infrastructure makes it difficult to conduct business: A poor infrastructure in roads signifies that it is difficult to transport goods and services to the consumers, and may even hinder export-related businesses if companies cannot ship the finished intermediary or final products to their intended customers abroad. The unreliability of the electric grid means that production and even administrative activities can be interrupted at any moment. Together, these inhospitable business climates decrease business...
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