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Below is the study by Maringan Panggabean, an Indonesian native who currently [May 2006] lives in San Francisco; this study presents the Indonesian government's economic policies as compared to the MIEPA list of policies as outlined above. The ratings herein are based on the following rating scale:
RATING SCALE
5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 2005. Used herein with permission]
To read a disclaimer about the analysis in this file, scroll to the bottom of the file.
Indonesia - Maringan Panggabean
Comparison of Indonesia's economic policies to MIEPA criteria as prepared by native student of Indonesia, Maringan Panggabean, studying in the US in May 2006.
RATING SUMMARY
POLICY NUMBER RAW SCORE ADJUSTED SCORE POSSIBLE PERCENTAGE
1 2.0 6.0 15.0 40 %
2 2.0 6.0 15.0 40
3 2.4 7.2 15.0 48
4 3.0 9.0 15.0 60
5 2.9 8.7 15.0 58
6 4.4 13.2 15.0 88
7 4.8 14.4 15.0 96
8 1.6 4.8 15.0 32
9 1.5 4.5 15.0 30
10 5.0 15.0 15.0 100
11 4.5 13.5 15.0 90
12 1.0 2.0 10.0 20
13 5.0 10.0 10.0 100
14 5.0 10.0 10.0 100
15 4.0 8.0 10.0 80
16 4.2 8.4 10.0 84
17 0.3 0.6 10.0 06
18 1.0 2.0 10.0 20
19 0.2 0.4 10.0 04
20 4.0 8.0 10.0 80
21 3.8 7.6 10.0 76
22 4.1 8.2 10.0 82
23 2.6 5.2 10.0 52
24 0.5 1.0 10.0 10
25 1.5 3.0 10.0 30
26 2.4 4.8 10.0 48
27 1.0 2.0 10.0 20
28 3.1 6.2 10.0 620
29 1.9 1.9 5.0 38
30 2.0 2.0 5.0 40
31 2.0 2.0 5.0 40
32 2.0 2.0 5.0 40
33 1.0 1.0 5.0 20
34 4.0 4.0 5.0 80
TOTAL 90.7 202.6 375.0 54.0%
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INDIVIDUAL POLICIES
1. Freedom from internal control: 2.0
There is no restriction on moving within the country for Indonesian citizens. The only requirement involves reporting to the neighborhood sub-districts to confirm that you are leaving one and entering another.
Source: Personal experience
2. Freedom of speech: 2.0
After the fall of President Soeharto Indonesia was suppose to move forward as a country and this included the right to have freedom of speech. Unfortunately, not all is well and it is still common for citizens to face repercussions for making negative remarks about the government and people in government.
Source: http://web.amnesty.org/library/Index/ENGASA210442003?open&of=ENG-2AS
3. Effective, fair police force: 2.4
Indonesian police have often been found guilty by international law of violating basic human rights. The majority of Indonesia?s population doesn?t trust the police. They carry a simple view of the police as powerful people that you shouldn?t mess with. The President , Dr Susilo Bambang Yudhoyono has made it a priority to see clarify the role of the police force in Indonesia and reassure the people that indeed requires consistent abidance by the law.
Source: http://www.interpol.int/Public/ICPO/speeches/AsianConfYudhoyono20060411.asp
4. Private property: 3.0
The Indonesian constitution stipulates that all natural resources in the country are owned by the state and the Indonesian government thus controls the allocation of all such resources. In regard to private property what you pay for you own. Foreign entities have no freehold rights to land ownership in Indonesia. Foreign investors' land holdings are usually obtained through long-term lease agreements (normally for 30 years) with the government or private parties. The US government in May 2003 again placed Indonesia on the Special 301 Priority Watch List for inadequate protection of Intellectual Property Rights (IPR), where Indonesia has been since the 1980s.
Source: http://www.usembassyjakarta.org/econ/investment2.html; http://jakarta.usembassy.gov/econ/forestreg.html
5 Commercial banks: 2.9
The federal bank, Bank Indonesia (BI) which is similar to the Federal Reserve Bank in the United States supposedly regulates the commercial banks. For the average individual/ business landing a loan from a commercial bank in Indonesia may require a lot of time and effort. People who are deemed exclusive in Indonesia are sure to get the loans they need much faster and on better terms.
Sources: http://www.adb.org/Indonesia/default.asp; Personal experience
6. Communication systems: 4.4
Although Indonesia is not yet considered to be a fully developed nation, its citizens in most parts of the country have reasonable access to a variety of media and communication systems. In the early 1990s, there were some 11 million television sets or an average of 56 per 1,000 people nationwide. Radio broadcast stations and radio sets were numerous in Indonesia in the early 1990s. There were some 530 medium wave, around 140 short wave, and 28 FM privately owned stations and some 22 million sets or 112 sets per 1,000 people.
In the 2003 Britannica Almanac a country study on Indonesia indicated the following units of media is available to per thousand people. Daily paper:4,665,000; radio receivers: 26,000,000; television receivers: 30,000,000; telephone main lines: 6,080,200; cellular telephone subscribers: 2,221,000; personal computers: 1,900,000, internet users 900,000 (all data as of 1999). When compared to other countries in Asia, the percentage of Indonesians that own a cellular phone is considered to be few. The number of Indonesians that are buying new cellular phones is growing at roughly an annual rate of 11%.
Sources: Britannica Almanac 2003; http://www.country-data.com/cgi-bin/query/r-6288.html; http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr112140e.html
7. Transportation: 4.8
As a country with over 13000 islands Indonesia has offers a variety of channels of transportation for people to get to their destinations. In 2002 an average of 14,600,000 people / month used the railway roadway system. In 2000 an average of 14,450,000 people / month used commercial and non-commercial ships to get across the waters. In 2002 an average of 1,016,000 people / month used air transportation.
Sources: http://indonesia.elga.net.id/indoway/transport.html; http://www.bps.go.id/sector/transpor/
8. Education: 1.6
The prolonged economic crisis in Indonesia combined with limited funds has forced the Indonesian government to delay the completion of its nine-year compulsory education program for elementary and junior high school children. This has resulted in a decreasing number of students of school age actually in school, and even fewer making it to college. In 1998-1999 the percentage of school age children (13-19) not in school rose from 33 to 38%. This is extremely high when compared to countries like the United States, which has about 4-5% annual high school dropout rate.
Sources: http://www2.unesco.org/wef/en-news/indonesia.shtm; http://www.thejakartapost.com/yesterdaydetail.asp?fileid=20060418.D03; http://chd.ucla.edu/IFLS/ppr/realexec.pdf
9. Social mobility: 1.5
Jobs in Indonesia are not consistently opened to the people with talent. On occasion this means that it may be more important to ask the question who do you know? Rather than what do you know? An even bigger source of the problem is the overall poor state of the economy, which has a strong correlation with the number of people who remain unemployed. Indonesians? with talent and determination still often find no job field open for them to put to use their talent / education.
Sources: Personal experience; http://www.ilo.org/public/english/region/asro/jakarta/download/emplunempl.pdf
10. Freedom from outside control: 5.0
Indonesia is known to stick with its internal government decisions with regard to the law of the land. Since its independence in 1945, no other country has been permitted to remove an Indonesian citizen and face international punishment without the consent of the Indonesian government.
Sources: personal opinion
11. Foreign currency transactions: 4.5
In Indonesia the average store or market will only accept Rupiahs as a form of currency. In high class hotels and resort areas, some well known international currency such as the American Dollar is accepted. When these businesses accept the dollar they calculate an exchange rate that will give them an additional profit. For example a crispy new dollar may be exchanged at a rate of Rp. 8500, while an older dollar bill might only be accepted as Rp. 7000.
Sources: personal experience
12. Border control: 1.0
As a nation with more than 13000 islands border control is virtually impossible which results in the smuggling of products and people. Additionally, corrupt border control officials have been found to harbor these types of illegal activities in exchange for money. Indonesia?s forests have often been illegally cut down to smuggle the logs outside the country. Also, domestic workers are frequently smuggled to Arabian Countries.
Sources: personal opinion
13. Currency: 5.0
There is one type of currency that is accepted nationally by individuals and businesses are the Rupiah, which has been established at least since Indonesia gained independence in 1945.
Sources: personal knowledge; http://www.expat.or.id/info/rupiahworld.html
14. Culture and language: 5.0
Even though there are very many regional dialects spread throughout Indonesia, the national language Bahasa Indonesia is taught throughout the land. If you live in Indonesia it is therefore necessary for you to be able to speak the national language Bahasa Indonesia.
Sources: personal opinion
15. Political Effectiveness: 4.0
Generally speaking Indonesia is politically effective and therefore able to gain the support necessary to handle domestic problems. The tsunami that hit Indonesia is an example of how the government communicated broadly across the world to gain various types of support that was badly needed.
Sources: personal opinion
16. Institutional stability: 4.2
The public school system, courts of law, and form of government have been in place for around 50 years or more, since the country declared its independence in 1945. In almost any public school in the country you can expect some sort of general standard such as the required uniform, attendance policy, educational curriculum, and school tuition. In the area of law enforcement there has been some change with the separation of responsibility between local and national police. Indonesia has always been a republic form of government. Perhaps equally important to the actual continual existence of these national and local institutions is that they carry out unwavering decisions that affect the general public, this is not the case.
Sources: http://www.preventconflict.org/portal/main/report_pol_stable.php
17. Honest Government: 0.3
Transparency International an international organization to combat corruption analyzed 159 countries based on the frequency at which workers received bribes in the private and public sectors. Then each country was ranked with the 1st rank being the most honest and the 159th being the most corrupt. The results were made public in 2005 based on the data from the past 3 years, where Indonesia received the 140th rank.
Sources: http://www.transparency.org/policy_and_research/surveys_indices/cpi/2005
18. Common Laws: 1.0
There are three types of law in Indonesia. The general legal system is derived from the Dutch legal system, Islamic law applies to Muslims and a third law system, ?Adat? or customary law, is applied mainly in local disputes. Enforcement of the law is vague and with money bribes you can expect to find favor with most law enforcement personnel.
Sources: personal opinion; http://www.preventconflict.org/portal/main/treaties.php
19. Central Bank: 0.2
Indonesian policy requires that any transaction involving foreign funds must involve the state government. For this reason most of the major banks in Indonesia are state owned and are by no means independent of political influences.
Sources: personal opinion
20. Domestic Budget Management: 4.0
According to the new national Indonesian concept the budget is said to be balanced when the size of the country's revenue equals the size of the country expenditure, without having foreign debt. In 2004, Indonesia central government revenue totaled to 16.1% of its GDP while central government expenditures was 17.6% of its GDP, giving forward a negative contribution towards it total debt (1.5%). With new tax regulations set in place, Indonesia projects an increase in revenue with some increase in expenditure to result in a negative 1% debt contribution. Overall, Indonesia does a fairly well managing its budget.
Sources: http://www.imf.org/external/np/sec/pn/2006/pn0618.htm
21. Government Debt: 3.8
Indonesia's foreign debts totaled to 61.04 billion USD up until December 2005. Indonesia is rated as a good debtor nation, always finding a way to service its debt. The country?s total external debt has been steadily decreasing since 2002 from about 65.7% of GDP to a projected 41.6% by the end of 2006. Indonesia?s external debt payments as a percentage of GDP were 95.4 % in 2000, 94.8% in 2001, and 76.0 % in 2002.
Sources: http://www.imf.org/external/np/sec/pn/2006/pn0618.htm; http://www.jubileeaustralia.org/526_country_data.php?id=41
22. Economics Statistics: 4.1
The governing body in Indonesia in charge of collecting and maintaining statistical data is called Biro Pusat Stastistik. This Bureau does a relatively good job tracking the various economic activities that can be broken down into statistical data. Information from this source is endorsed by other governing bodies and is believed to be accurate. The main problem is that Indonesia seems to be a little slow in keep up to date information readily available to the public.
Sources: http://www.bps.go.id/index.shtml
23. Public Health & Safety: 2.6
Indonesia is still classified as an industrialized nation, giving rise to wide spread of factories and unfortunately poor environmental policies. Troubling research studies arise with Tuberculosis in Indonesia. As of the late 90?s Indonesia experienced at least half a million new cases of TB per year and 175,000 deaths. The level of infant mortality has been cut in half from 60 per 1000 in 1990 to about 30 per 1000 in 2004. While this reduction is significant and worth recognizing, the infant mortality rate is still about 4 times that of the United States and other European countries.
Sources: http://www.unicef.org/infobycountry/indonesia_statistics.html
24. High Wage Policies: 0.5
Officially on almost all levels of typical government assumed jobs, compensation is declared to be low. This is part of the reason many people turn to corruption to supplement their income, so that they may live a better live. Additionally, any small increase in wage has been offset by the strong inflation in recent years.
Sources: personal opinion
25. Environment Protection: 1.5
Indonesia is recognized as a country that is abundant in natural resources, and along with this abundance comes the responsibility to protect and preserve the environment. Unfortunately, Indonesia falls far short of fulfilling its duty, the air is heavily polluted, water often contaminated, and deforestation remains commonly out of control. In 2001 an internal audit revealed that a large goal mine in Sulawesi ( 1 of the 5 largest islands) had likely been releasing large quantities of mercury into the air and surrounding water. The illegally cutting and smuggling of trees remains a huge problem that government is still unable to control. In March 2006 the Committee Chairman for National Green Archipelago in Indonesia, Ary Sudarsono said, ?With a destruction level of 2.8 million hectares annually, the Indonesian forests will become extinct in the next 15 years,?. This he said with reference to the fact that during the 2000-2005 period, out of the 120.3 million hectares of forests in Indonesia, 59.2 million hectares were damaged. "If the country?s forests are all damaged, natural disasters such as floods, landslides and drought will take place everywhere," he added.
Sources: http://www.antara.co.id/en/seenws/index.php?id=10027; http://countrystudies.us/indonesia/30.htm
26. Strong Army: 2.4
The duty of the army includes to protect and secure its people from the invasion of another country. Given the relatively limited military equipment and lack of accountability across military personnel, I find the Indonesian army highly lacking in its ability to fulfill its obligations to its citizens.
The National Army of Indonesia (TNI), which stands for Tentara Nasional Indonesia is made up of roughly some 217,000 active national army personnel, but its entire military might must include the navy, marines, air force, and several thousand of regional positions throughout the local government. Compared to many of its neighboring countries Indonesia appears to have a sizable military. Indonesia has had difficulty acquiring and developing its military technology . In 2005 the Indonesian Air Force experienced a logistics crisis, especially in regard to the F-16 Fighting Falcons and A-4 Skyhawks that account for almost 80% of the total number of Indonesian combat aircraft. The supply of spare parts for these aircraft from the United States was stopped due to an embargo imposed on Indonesia following a number of violations against civil and human rights in East Timor.
Sources: http://www.globalsecurity.org/military/world/indonesia/adri.htm27; Personal Opinion
27. Foreign Trade Impact: 1.0
Statistics tell the most of story needed to determine the impact foreign trade has on Indonesia?s economy. In 2005 the nation?s total exports were 85.6 billion USD, the nation?s total imports were 57.55 billion USD, and the nation?s gross domestic product was estimated to be 250 billion USD. If we add the total imports and exports, then divided into the total Gross Domestic product we see that trade is representative of 57 % of the nation?s GDP, far above the 33% target rate, which is deemed appropriate. Indonesian's economy heavily relies on foreign trade.
Sources: http://www.usembassyjakarta.org/econ/Trade%20Investment%20HighlightsJan%2006.pdf
28. Protection of Foreign Currency Earning Enterprise: 3.1
The creation of the Indonesian governing body BKPM (Badan Koordinasi Penanaman Modal) translated to be the Coordinating Board for Foreign Investment has greatly clarified the government?s ability and importance to promote foreign investment in Indonesia. It has established a few laws to easy and lure foreign investors. However, wide spread corruption from within and inconsistent enforcement of the laws frustrates investors. This causes them to skip Indonesia and look to its neighboring countries that are more honest and organized. .
Sources: http://www.expat.or.id/business/companyestablishment.html; Personal Opinion
29. Management of Foreign Currency Budget: 1.9
According to the January 2006 trade and investment highlights report by the Indonesian Embassy at Jakarta the overall country?s exports in 2005 totaled to 85.6 billion USD partly attributed to the country?s increased ability to meet crude oil and natural gas demands of neighboring countries such as China. The country?s total imports for 2005 increased to a total of 57.55 billion USD. The increase in imports is partly reflective of the growth in capital goods imports signifying an improving business climate in Indonesia?s manufacturing sector.
The country?s overall management of foreign currency is still far from ideal where the total exports heavily outweigh the total imports.
Sources: http://www.usembassyjakarta.org/econ/Trade%20Investment%20HighlightsJan%2006.pdf; http://www.bernama.com.my/bernama/v3/news.php?id=178980
30. Layers of Collection Action: 2.0
There is a high tendency for power and networks to gravitate to the national capital in Jakarta rather than diffuse geographically in Indonesia. Indonesian officials have been primarily appointed although there are some efforts to have more officials elected through a democratic process. Businesses suffer not only from the time wasted in awaiting a higher official?s approval, but often are subject to multiple agencies that require briberies.
Sources: www.publicintegrity.org/ga/county.aspx?cc=id; Personal Opinion
31. Pro-Business Climate: 2.0
As reported by Transparency International, from the least to most corrupt countries (1-145), Indonesia ranks 133. The government can say all it wants to ?attract? new businesses, but the bottom line is people will always be reluctant to do business in Indonesian knowing that they must deal with a highly corrupted government system Investment in Indonesia is categorized as either domestic (PMDN) or foreign (PMA). An investment with any degree of direct foreign ownership is defined as PMA. Both foreign and domestic owned enterprises deal with similar branches of government to grant licensing and permits. The upfront official costs are considerably affordable, but it is only through money bribery (called uang soggok) to the officials before you can expect events to properly take place. These conditions are founded by laws and regulations are often vague and require substantial interpretation by implementing offices, leading to business uncertainty for all.
Sources: http://www.ccsf.edu/Resources/learning.html - country watch Indonesia; Personal Opinion
32. Government Enterprises: 2.0
Overall, both the private sector and government are in poor economic shape, the country is growing at a rate of 4% year, one of the slowest in Asia. The government has managed most of large industries over the years in the form of State-Owned Enterprises, such as electricity, water, rubber, banking, and telecommunications.
The Indonesian minister for State-Owned Enterprises (SOE?s) recently announced plans to privatize up to 20 of Indonesia's 158 SOE's this year to raise funds for the 2006 state budget. Among the other 158 SOE?s are state electricity company PLN, aircraft maker PT Dirgantara Indonesia (DI), shipbuilder PT PAL, state munitions factory PT Pindad, two state airlines, a steel-maker, shipping companies, airport operators, port operators, mining companies, construction and civil-engineering enterprises, fertilizer manufacturers, rubber plantations, palm-oil plantations, pulp-and-paper manufacturers and forestry companies. Profit isn?t very high across these SOE?s with rubber plantations being one of the more profitable industries.
There is still a very slow trend to move into privatization, rules such as the budget limitation for a maximum investment of Rp1 trillion from privatization allows no real opportunity for a worthwhile stake in State-owned Enterprises.
Sources: http://www.atimes.com/atimes/Southeast_Asia/HA25Ae03.html
33. International Security Agreements: 1.0
Officially Indonesia has been classified as a nonaligned nation, having no military alliance with any other nation or bloc. However, the country is a member of the ASEAN (Association of Southeast Asian Nations) organization. This organization is a regional alliance of ten independent countries that promotes stability and economic growth within Southeast Asia. Business owners in Indonesia can depend little on international security
The lack of international security agreements makes Indonesian businesses an easy takeover in the event of an invasion. Moreover, the Indonesian government in its current chaotic state cannot efficiently protect the security of businesses due to corrupt money management and increasing suicide attacks.
Source: www.aseansec.org/4736.htm; Personal Opinion
34. Protection of Domestic Enterprises from Government mandated Costs: 4.0
Domestic Enterprises do appear to have some benefits from government mandated costs. One notable protection is evident in the country?s food industry. The Minister of Industry and Trade in Indonesia has required that importers of certain product categories, including rice, corn, and sugar obtain special import identity cards. Without these specials cards, products can be detained at the port. Additionally, all imported food products must be tested by BPOM (equivalent to the U.S. FDA), which charges a fee from $6.00 to around $300.00 per item. This results in higher costs for foreign companies and serves to protect the domestic companies in this sector.
Another gradual form of government protection (although still informal) is that consumer food products be labeled in Bahasa Indonesia only and no other language. The higher cost to produce packaging exclusively for the Indonesian market discourages foreign companies to compete shelf-space for consumer food products. Therefore, favoring the locally produced goods.
Sources: http://www.ustr.gov/assets/Document_Library/Reports_Publications/2004/2004_National_Trade_Estimate/2004_NTE_Report/asset_upload_file322_4774.pdf
DISCLAIMER
All the information and conclusions in each country analysis are solely the responsibility of the individual student and have not been verified, corrected, checked for copyright infringement or evaluated in any way by MIEPA or Mike P. McKeever. You are solely responsible for the results of any use you make of the information and conclusions in these studies. Use them at your own risk as interesting supplemental information only instead of seasoned judgements about the policy factors contained herein. Each student has granted permission for his or her work to be displayed here under his or her own name or wishes to remain anonymous and have either created a pen name or used no name at all; if you wish to contact them for any reason, forward your request to MIEPA and the student will be notified of your interest.To learn more about other countries, click to other files here:
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