The purpose of this paper is to provide a critical review of the Indonesian economy and its industrialization effort, highlighting competitiveness issues faced by Indonesia and linking them to the current investment climate.
Secondary data are used to assess competitiveness performance and competitiveness determinants. In competitiveness performance the paper analyzes the role of the Indonesian economy through its shares in world population, world total trade, and world total inward foreign direct investment. The paper also looks at outcome measures such as real GDP per capita in PPP terms and real GDP in PPP terms in level and growth. For competitiveness determinants, the paper analyzes competitive determinants reported by the Global Competitiveness Index.
The competitive position of Indonesia is compared to other Asean countries and different government policies and strategies from the first president (Soekarno) till the current president (Susilo Bambang Yudhoyono). This paper also provides some key policy recommendations to enhance investment climate and competitiveness of Indonesia.
This paper does not look at investor opinion toward Indonesia which perhaps could help us in developing policy.
The results show that the Indonesian Government has taken steps in several areas to improve investment climate. But still they have to improve their competitiveness performance by providing a coherent strategy, developing close connections between economics and politics, through transparent regulation, formulating an attractive investment policy, and realizing the importance of excellent political leadership.
This paper provides a critical analysis of the Indonesian competitive position and offers policy recommendations on how we can improve its performance.
