Business in Indonesia: New Challenges, Old Problems

Business in Indonesia: New Challenges, Old Problems

Business in Indonesia: New Challenges, Old Problems

Business in Indonesia: New Challenges, Old Problems


This book examines Indonesia's business environment since reformasi began in 1985 - what stayed the same, what changed, and would could change. Economic recovery has been hesitant. Regime change and political reform have created uncertainties that have deepened reluctance to invest. A raft of government-instigated changes have left their imprint: decentralization, privatization, new company legislation, anti-corruption efforts, nationalization of debt-ridden banks, and firms being forced into receivership. More cautious lending practices by remaining financial institutions have imposed a credit crunch. Increased worker militancy and minimum wage rises have led some international firms to reconsider their presence in Indonesia. Changes in the business environment have caused a redefinition of private enterprise-government relations, inducing firms to re-examine their organization and management.

The book includes insights of distinguished and stimulating speakers from business, independent research organizations, and academic institutions in Indonesia, Australia and elsewhere.


Pierre van der Eng

Six years ago, Indonesia’s business system was in turmoil. Companies were forced to absorb the consequences of a significant depreciation of the rupiah, accelerating inflation, and restricted access to credit due to growing reluctance of foreign lenders and the near-collapse of the domestic financial system. A change in the political regime and the conditions under which the International Monetary Fund (IMF) provided support to Indonesia during 1998–2003 brought an era of political change and reform – reformasi. New government policies were introduced to remedy the problems that had plagued Indonesia’s business system in the past.

There have been significant improvements particularly at the macro level during the last six years. The all-encompassing banking crisis was addressed, a run on the banks was avoided and bad loans fell to 8 per cent of outstanding loans. Macroeconomic stability was regained, the rupiah was stabilised and appreciated, inflation moderated, interest rates fell, and export growth was recorded. Even the stock market perked up, reaching pre-crisis levels in January 2004. A new political reality offering a greater degree of openness and plurality emerged. Various policy reforms were introduced and generally sound macroeconomic policies were maintained.

On the other hand, many observers have remained pessimistic, particularly in Indonesia where some ambivalent hankering for the Soeharto era has surfaced. The pessimists argue that reformasi so far has not achieved enough to bolster the bottom line: economic recovery. Indonesia experiences rates of economic growth well below those enjoyed under Soeharto, and below what is needed to generate the jobs and income opportunities that the growing population requires. Dismally low rates of foreign investment compared to other crisis countries, such as South Korea and Thailand, are often regarded as a concise indicator of the woes of Indonesia’s business environment.

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