London Stock Exchange Market Analysis - Essay Example

At independence, the country had experienced growth in its gross domestic product amounting to 12%. This tremendous growth was a result of the peace created by the colonial masters who served as the managers and sole beneficiaries of the growth. The Belgium colonial masters encouraged their compatriots to invest in the vast land and take advantage of the cheaply available labor (Florian & Tony, 2012).

The country earned self-rule in 1945. For once, an Indonesian became the leader of the government. This empowered natives economically. They gained control of the country’s resources. The initial native presidents in Indonesia excluded foreigners from their country’s economic growth. This could be attributed to an inherited paranoia from their colonizers. The Dutch, who till the time of independence controlled over 25% of the country’s gross domestic product, lost their investments to the natives who felt that it was their turn to have what had always been theirs.

The subsequent mismanagement led to the collapse of most of these industries. Additionally, the Sukarno-led government became progressively corrupt. This is a move that made a few citizens amass most of the country’s resources at the expense of others. The president manipulated the constitution to suit his autocratic wants which sought to promote economically unsound practices. He, therefore, kept pushing for hatred for foreigners investing in the country for the entire sixteen years he was the president. During that time, there was no significant foreign investor setting foot in Indonesia. He favored local companies and enacted policies that encouraged local investments.

In 1950, just a year after his rise to power, President Sukarno enacted a policy that gave local investors priority to import. This resulted in economical anarchy as only a minority, most of whom were the president’s accolades, had the certification to do so. The few thus gained much profit from the majority who coincidentally were poor. Such hostilities, coupled with the corruption by the officials in the government, threatened to bring down the country as the gross domestic product dropped by more than fifty percent from where it was at independence. With such a reputation, foreign investors, especially those from the west, gave the country a wide berth. No matter how hard most of the countries neighboring Indonesia tried to woo them, they could not take heed (Michael & Christian, 2009).

When President Suharto eventually left office, the economy was bankrupt. His successor, Suharto, had the determination to reverse the economy. In collaboration with the international monetary fund and the World Bank, the president oversaw the revision of the foreign investment law allowing the return of foreign investors in the country for the first time since 1949. However, the ordinance alone was not incentive enough for foreign investors. Among other factions of the government that Sukarno had succeeded in disbanding including the judiciary and the law enforcement structure. The absence of the two meant that there was no justice, equality, and above all security. Foreign investors need a stable and secure environment that safeguards their investments. The new president’s first assignment was therefore to reverse this pathetic situation. This he did by appointing himself the prime minister and doubling up as the minister for defense and security (Frey, 1956).

There can never be effective economic growth in a country without the contribution of foreign investors. Governments must ensure that they create enabling environments for foreign investments. Some of the key factors that determine an enabling business environment include security. This is the main factor that affects every type of investment including local investments. A business environment must guarantee the safety of the investments. Another yet equally important factor that affects the level of foreign activity in the country is the tax policy in the country. Taxation laws that exploit foreign investors discourage foreign investments. A country must therefore ensure it enacts taxation laws that portray fairness. Understandably, governments should favor local companies but there should not be a big disparity between the two-market players (Elizabeth & Michelle, 2008).

Peace and stability are products of political maturity. a politically unstable country experiences civil strife, which in turn affects security besides being derogative to the conduct of business. The cost of electricity among other resources used in the production process determines the price of [products. An excessive rate results in losses for the businesses, dissuading the whole essence of doing business. These are some of the factors that hampered the development of Indonesia, the country faced rampant civil strife following the civil wars and poor governance. The only factor that will help reverse the state rapidly is to develop a politically stable and very secure environment for both local and foreign investors. Read More