Case Study: Indonesia, Asia’s Stumbling Giant
What political factors explain Indonesia’s poor economic performance, what were the factors and were they related? From 1967 to 1998 President Suharto used a “crony capitalism” style of government to control his country, (Hill, 2013). In this style of government, leaders such as Suharto can favor the business enterprises of his supporters and family. Instead of placing money in the country’s infrastructure or possibly better ran companies, Suharto placed the countries money in failing enterprises. When President Suharto placed enough money into the failing businesses of Indonesia he eventually ran the countries debt up to over $43 billion, (Hill, 2013). When The International Monetary Fund stepped in to assist with these debts, the people of Indonesia were realizing where the money was really going back into companies that Suharto had an interest in. There was an uprising, and a democracy quickly moved in to replace Suharto’s dictatorship. The political and economic short fallings are very much related. Instead of President Suharto supporting the best companies for his country he supported failing companies. Instead of Suharto putting money into the infrastructure of his country, he placed money in his own pocket.
Why do you think foreign firms exited Indonesia in the early 2000s, what were the implications and what is required to reverse the trend? Lack of infrastructure repairs placed 90% of the population without modern sewerage facilities,(Hill, 2013) and half of the populace had no electricity because of ageing electrical grids. Foreign investors would have been losing money because of time dealing with inadequate infrastructure including roads that were also in need of repair, further hindering companies abilities to transport their products. Once the foreign investors started leaving, Indonesia was forced to start selling off its natural resources. They sold their mining products, oil and gas productions and forestry to stay afloat. This has kept Indonesia moving in the right direction as far as the public debt of the gross domestic product (GDP) per capita or value of all goods and services produced in the country during the past ten years, (Hill, 2013). This has also lowered inflation from 12 percent annual to just 5 percent in 2010, and increasing the economy annum by 4 to 6 percent during 2001 to 2010, (Hill, 2013). Bringing foreign investors back is one way to bring money back into the country without strip-mining all of its natural resources. In order for this to happen, the infrastructure needs to be repaired.
Why is corruption so endemic in Indonesia and what are its consequences? Corruption is so native or endemic in Indonesia because of the 31 year reign of President Suharto, though out of the office now for the better part of two decades now, his years in office have corrupted the Indonesian government to its core. In Indonesia’s current system, government officials know the average time to start a business is 151 days, where other leading nations in South East Asia such as Singapore it only takes 8 days, (Hill, 2013). Time is money in the business world, and the extra five months it takes just to start your company is too long for most investors. Government officials are also paid very little in Indonesia, and to stay out of the 50 percent of the population that has no power, officials have taken to requiring bribes to reduce red tape times. The more offices the paperwork needs to go through the more bribes will be requested. This can further increase the cost of starting a company in Indonesia. Lastly the police have also become involved in the governments corruptions. They have been known to throw foreign investors into jail and hold them until bribes can be collected, (Hill, 2013). The consequences of all the corruption have turned foreign investors away from Indonesia. Investors rather pay more in labor cost up front and know what they are getting into vice being forced later down the road to pay an unknown number of bribes to keep their company open and their managers safe.
What are the risks facing foreign firms that do business in Indonesia and how do they reduce these risks? In conclusion, the risk involved with foreign firms wanting to do business in Indonesia is uncertainty. Businesses can never be certain as to how much they will be forced to pay in bribes. They can never be certain of the safety of their managers sent to Indonesia to run manage their business. Companies can never be certain of how long it will even take to start the company up, or if it will have enough power to run every day. The Indonesian government is trying to fix the corruption in their country by implementing transparent and accountable governance (Snapshot, 2012). They have recently launched an anti-corruption drive, and have started to increase wages of government officials. The anti-corruption drive is failing because the political elites are so corrupt that it is not in their interest to do anything meaningful to fix the system,(Hill, 2013). Though already several politicians, legislators and former ministers have been caught and sentenced on corruption charges under this policy (Snapshot, 2012).

References
Hill, C. (2013). International business: Competing in the global marketplace. (9th ed.). New York, NY: McGraw-Hill/Irwin.

Snapshot (May, 2012). Snapshot of the Indonesia Country Profile. Business Anti-Corruption Portal. Retrieved from: http://www.business-anti-corruption.com/country-profiles/east-asia-the-pacific/indonesia/?pageid=226