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Forbes october 2012

Download this article –Forbes Oct 2012

by Jennie S. Bev

Indonesia has long grappled with corruption
and Islamic radicalism, along with abuses of minority religions, yet
Indonesia’s latest growth figures showed a promising 6.4%. How do we explain
this paradox? It seems these serious issues don’t have any effect on economic
growth—yet it seems intuitively correct that radicalism and corruption would hamper
growth. Is it really so? Or are we heading into a future that is likely
affected by these social liabilities?

Nor did these issues seem to have a large
impact on investment. In the first half of this year, investment in Indonesia
increased 24%, according to Indonesia’s Investment Coordinating Board (BKPM).
Investments contribute roughly one-third of current GDP, which is the largest
since 1997 Asian financial crisis. The new investment influx totaled $8.1
billion in the second quarter, an increase of 10% from the first quarter. The
overall investment total is now around $15.6 billion. In G20, only China has a
faster growth in investment than Indonesia.

We should also thank the record low interest
rates as an important contributing factor to such growth. Bank Indonesia
Governor Darmin Nasution is determined to keep the rate at 5.75%. We should also
expect to see it remain as low into next year, if there’s no improvement in the
Eurozone crisis—and even an additional reductions are a possibility if
economist Nouriel Roubini’s prediction of a “perfect storm” come true next
year. The World Bank has a less-than-rosy estimate of
3.8% for Indonesia’s growth next year.

For now, Indonesia has many positive factors
supporting growth.
The government is relatively stable, and is a thriving young
democracy. With high-profile efforts to eradicate corruption, tax revenues that
have doubled from last year and effective efforts to develop confidence among global
investors, it is understandable that the occasional Islamic extremism and
rampant corruption have so far not appeared to hurt economic performance
(although there is the argument that growth would be higher without these
factors).

The first Congress of Indonesian Diaspora
held this July in Los Angeles, for instance, is an impressive move initiated by
Indonesian Ambassador to the United States Dino Pati Djalal. It serves not only
as a unifying umbrella paradigm among millions of Indonesian diaspora
worldwide, but also to bridge cultures, nations and peoples with a better
understanding on what Indonesia and Indonesians can offer the world. Dino’s
initiative in supporting dual citizenship, for example, is a much admired
undertaking.

In conclusion, in the case of Indonesia, the
current political environment with dashes of radicalism and rampant corruption
has until now no direct causality toward economic performance, even though a
degree of correlation could occur in the future. For now, those concerns aren’t
significant enough to completely undermine economic growth and investment. They
are, however, time bombs that must be addressed in due time. How long it is
going to continue ticking remains to be seen and whether the counteracting good
intentions will be effective.[]

 Forbes Indonesia, October 2012

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