Leadership, Infrastructure Are Major Challenges in Indonesia

The upcoming elections in Indonesia is an opportunity for the next government to move towards greater transparency in administration, and cut wasteful spending, according to Maplecroft.


Although Jakarta Mayor Joko Widodo, who is known as an efficient administrator with an honest reputation, has not declared an interest in running for the presidency, he remains extremely popular and could well be elected the next president.


Corruption will remain a systemic risk in Indonesia at all levels of government. However, the Corruption Eradication Commission (KPK) remains fiercely independent and effective, with a 99% conviction rate against corrupt officials and politicians. This bodes well for an improvement in the business environment in the long term.


“In Indonesia challenges and opportunities sit side by side,” states Jim O’Neill, who is also founder of the BRICs concept and proponent of the MINT economies (Mexico, Indonesia, Nigeria and Turkey) as the next economic growth hotspots. “I would say leadership and infrastructure are the major challenges.”


The report reveals that over a five year period Indonesia has climbed from 16th to 47th (where 1st is the highest risk) in Maplecroft’s Rule of Law Index in the new Legal and Regulatory Environment Risk Atlas 2014, a positive shift that sees the country move from ‘extreme’ to ‘high risk.’


Although growth prospects in Indonesia have moderated over the last year, the report expects infrastructure spending to aid economic recovery in the medium term. In November 2013, the government announced plans for more than US$33 billion in new infrastructure projects to boost the economy.


In another positive indicator, the government subsequently relaxed norms for foreign investments in sectors including power plants, ports and airports.


The extremely high level of decentralisation of power will prove the main regulatory hurdle to investors in Indonesia. However, new legislation such as the Industries Law is much-needed steps to consolidate the hundreds of regulations and laws that govern economic activity in the country.


Nationalistic economic policies such as restrictions on export of minerals and greater requirements for domestic value addition for minerals are set to continue for the foreseeable future, regardless of the outcome of elections.


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