Introduction:

In 17
t h
Century Indonesia was a Dutch colony, it came under Japanese rul e in 1942
and was ruled ti ll 1945 by the Japanese. Indonesian formall y got its independence
in 1949 after 4 years of brutal struggle with the Dutch and an UN Interventi on.
Initial days of democracy witnessed uneasy days and culminated with SUKARNO
(military) taking control in 1957. He in turn was toppled by Suharto and then began
the time of Indonesia being recogni zed as an economi c powerhouse with strong
pol ici es for encouraging foreign investment. This golden period marched til l 1998
when all the Asian tigers fell like a pack in wake of currency crisi s.

Suharto as a result gave into o free and Fare electi on post crisi s and now we al l
recogni ze Indonesia as an archipel ago state with worlds largest popul ation of
Muslims and 3
r d
most popul ous country i n the entire world. (After India and China)



Indonesia is competing with neighboring Singapore and Malaysia to upgrade its infrastructure to
the first world countries, Last 3 years saw heavy investment in roads, rails and ports
infrastructure. Now these investments are bearing fruit, and as a result we are seeing a jump in
ranking in Infra pillar of GCR to 61st (an increase of 17 ranks).

Institutional Voids long considered as a bottleneck for Indonesia growth are finally being
addressed to. In terms of Public and Private Participation, we are seeing a real improvement, it
is up 5 places in rankings and we see good quality improvement in Public and Private
Institutions. As compared to its larger peers like India, Indonesia ranks 45th on GCR in
Government Efficiency and 54th on metric of undue influence.

Although steps are being taken by current government to curb Corruption and Crime, still both
remain daunting issues affecting competitiveness of Indonesia.


On Macroeconomic Front Indonesia is strong than most other emerging countries. This can be
seen in recent Fed Tapering concerns where Indonesia was placed better than other emerging
nations because of its low Current account deficit as a percentage of GDP. (1.3 %)


There is a large segment of population who are in Informal employment in the country, we also
see inadequate levels of sanitation (one of the reasons for ease of spread of diseases).
Indonesia has also a highly diversified biological ecosystem but this is being threatened by high
levels of deforestation and rising levels of CO2 emissions.

We can summarize Indonesia to be an Investor friendly place in coming times with a good score
in ease of doing business if it can tackle its problem areas of corruption and bureaucracy
impasse, and at the same time increasing its investment in Infrastructure. There is also need to
improve education levels and increase investment in education (which is currently only 3 % of
GDP as on 2012)



02 | P a g e

Corruption and The rise of sub urban cities:

Ruchir Sharma in his book breakout nation points out a rule of the book that if sub urban or
second cities emerge in any countries than it is on a definite path of equal development albeit
marked by corruption.

We have seen lately a sense of crony capitalism in India and China, where corruption has
become a way of life. Although parallels can be drawn in Indonesia too, still we see what is
known as efficient corruption in Indonesia, The Archipelago economy is witnessing a full swing
of projects unlike India where most projects are stuck in government channels, with new
projects and robust infrastructure we are witnessing rise of second cities in Indonesia and
capital being generated in places apart from Jakarta.


Signs of Pressure?
In spite of these implicit strengths, there are some visible Signs of pressure In Indonesian
Economy. Foremost of these are policy measures to boost domestic Indonesian industries.
Since last 3 years, there is a push to secure energy sectors only for Indonesian companies. As
these and other industries may see government protection, inefficiencies are building up and we
are now seeing some initial signs of pressure, especially in manufacturing sector.
For Example, government policies for mining and related natural ore industries have been
counterproductive with falling levels of mining output and negative returns on huge investment
that is being done. We are also seeing a decline in investment for petroleum sector which is
behaving identical to mining recently.