Pestel Analysis of Indonesia

1 January 2017

Bahasa is the official language in Indonesia which is a modified form of Malay but the most widely spoken language is Javanese. 88% of Indonesians population is Muslim. It has a very large trading environment, with several countries ranging in products from gas to textiles. Among the most well known islands are Sumatra, Java, Bali, Kalimantan (formerly Borneo), Sulawesi (formerly Celebes), the Maluku Islands (or better known as Moluccas, the original Spice Islands) and Papua.  Analysis Political Analysis: Political Background:

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In 1602 the Dutch established the Dutch East India Company (VOC) and became the dominant European power. Following bankruptcy, the VOC was formally dissolved in 1800, and the government of the Netherlands established the Dutch East Indies as a nationalized colony. Japanese occupation during World War II ended Dutch rule, and encouraged the previously suppressed Indonesian independence movement. A later UN report stated that four million people died in Indonesia as a result of famine and forced labour during the Japanese occupation.

Two days after the surrender of Japan in August 1945, Sukarno, an influential nationalist leader, declared independence and was appointed president. The Netherlands tried to re-establish their rule, and the resulting conflict ended in December 1949, when in the face of international pressure, the Dutch formally recognized Indonesian independence (with the exception of the Dutch territory of West New Guinea, which was incorporated into Indonesia following the 1962 New York Agreement, and the UN-mandated Act of Free Choice of 1969).

Sukarno moved Indonesia from democracy towards authoritarianism, and maintained his power base by balancing the opposing forces of the military and the Communist Party of Indonesia (PKI). An attempted coup on 30 September 1965 was countered by the army, who led a violent anti-communist purge, during which the PKI was blamed for the coup and effectively destroyed. Around 500,000 people are estimated to have been killed. The head of the military, General Suharto, outmanoeuvred the politically weakened Sukarno, and was formally appointed president in March 1968.

His New Order administration was supported by the US government, and encouraged foreign direct investment in Indonesia, which was a major factor in the subsequent three decades of substantial economic growth. However, the authoritarian “New Order” was widely accused of corruption and suppression of political opposition. Indonesia was the country hardest hit by the late 1990s Asian financial crisis. This led to popular protest against the New Order which led to Suharto’s resignation in May 1998.

In 1999, East Timor voted to secede from Indonesia, after a twenty-five-year military occupation that was marked by international condemnation of repression of the East Timorese. Since Suharto’s resignation, a strengthening of democratic processes has included a regional autonomy program, and the first direct presidential election in 2004. A political settlement to an armed separatist conflict in Aceh was achieved in 2005. Political and economic instability, social unrest, corruption, and terrorism slowed progress, however, in the last five years the economy has performed strongly.

Although relations among different religious and ethnic groups are largely harmonious, sectarian discontent and violence has occurred. Following the resignation of President Suharto in 1998, Indonesian political and governmental structures have undergone major reforms. Four amendments to the 1945 Constitution of Indonesia have revamped the executive, judicial, and legislative branches. Political system: The president of Indonesia is the head of state, commander-in-chief of the Indonesian National Armed Forces, and the director of domestic governance, policy-making, and foreign affairs.

The president appoints a council of ministers, who is not required to be elected members of the legislature. The 2004 presidential election was the first in which the people directly elected the president and vice president. The president may serve a maximum of two consecutive five-year terms. The highest representative body at national level is the People’s Consultative Assembly (MPR). Its main functions are supporting and amending the constitution, inaugurating the president, and formalizing broad outlines of state policy. It has the power to impeach the president.

The MPR comprises two houses; the People’s Representative Council (DPR), with 560 members, and the Regional Representative Council (DPD), with 132 members. The DPR passes legislation and monitors the executive branch; party-aligned members are elected for five-year terms by proportional representation. Reforms since 1998 have markedly increased the DPR’s role in national governance. The DPD is a new chamber for matters of regional management. Most civil disputes appear before a State Court (Pengadilan Negeri); appeals are heard before the High Court (Pengadilan Tinggi).

The Supreme Court (Mahkamah Agung) is the country’s highest court, and hears final cessation appeals and conducts case reviews. Other courts include the Commercial Court, which handles bankruptcy and insolvency; a State Administrative Court (Pengadilan Tata Negara) to hear administrative law cases against the government; a Constitutional Court (Mahkamah Konstitusi) to hear disputes concerning legality of law, general elections, dissolution of political parties, and the scope of authority of state institutions; and a Religious Court (Pengadilan Agama) to deal with codified Sharia Law cases.

Political Fallout & the recovery: In the 1960s, the economy deteriorated drastically as a result of political instability, a young and inexperienced government, and economic nationalism, which resulted in severe poverty and hunger. By the time of Sokarno’s downfall in the mid-1960s, the economy was in chaos with 1,000% annual inflation, shrinking export revenues, crumbling infrastructure, factories operating at minimal capacity, and negligible investment.

Following President Sokarno’s downfall in the mid-1960s, the New Order administration brought a degree of discipline to economic policy that quickly brought inflation down, stabilized the currency, rescheduled foreign debt, and attracted foreign aid and investment. Indonesia was until recently Southeast Asia’s only member of OPEC, and the 1970s oil price raises provided an export revenue windfall that contributed to sustained high economic growth rates, averaging over 7% from 1968 to 1981. High levels of regulation and a dependence on declining oil prices, growth slowed to an average of 4. % per annum between 1981 and 1988. A range of economic reforms were introduced in the late 1980s including a managed devaluation of the rupiah to improve export competitiveness, and de-regulation of the financial sector, Foreign investment flowed into Indonesia, particularly into the rapidly developing export-oriented manufacturing sector, and from 1989 to 1997, the Indonesian economy grew by an average of over 7%. Suharto, the 2nd president of Indonesia. Under his New Order administration, the country enjoyed the sustained economic development from 1970s to 1996.

High levels of economic growth from 1987–1997 masked a number of structural weaknesses in Indonesia’s economy. Growth came at a high cost in terms of weak and corrupt institutions, severe public indebtedness through mismanagement of the financial sector, the rapid depletion of Indonesia’s natural resources, and a culture of favors and corruption in the business elite. Corruption particularly gained momentum in the 1990s, reaching to the highest levels of the political hierarchy as Suharto became the most corrupt leader according to Transparency International’s corrupt leaders list.

As a result, the legal system was very weak, and there was no effective way to enforce contracts, collect debts, or sue for bankruptcy. Banking practices were much unsophisticated, with collateral-based lending the norm and widespread violation of prudential regulations, including limits on connected lending. Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade and export restrictions all created economic distortions. 12. 5% of its population live below poverty line (determined on the basis of the national poverty line).

Political Structure: In Indonesia after every five year election is being contested for president and vice president post by direct vote of the citizenry. Last time it was held on 8 July 2009 (next to be held in July 2014). Susilo Bambang has elected as president and Muhammad Yusuf Kalla is the Vice-President. Similarly, Cabinet also appointed by the president. Administratively, Indonesia consists of 33 provinces, five of which have special status. Each province has its own legislature and governor.

The provinces are subdivided into regencies (kabupaten) and cities (kota), which are further subdivided into districts (kecamatan), and again into village groupings (either desa or kelurahan). Furthermore, a village is divided into several citizen-groups (Rukun-Warga (RW)) which are further divided into several neighbourhood-groups (Rukun-Tetangga (RT)). Following the implementation of regional autonomy measures in 2001, the regencies and cities have become the key administrative units, responsible for providing most government services.

The village administration level is the most influential on a citizen’s daily life, and handles matters of a village or neighborhood through an elected lurah or kepala desa (village chief). The provinces of Aceh, Jakarta, Yogyakarta, Papua, and West Papua have greater legislative privileges and a higher degree of autonomy from the central government than the other provinces. The Acehnese government, for example, has the right to create certain elements of an independent legal system; in 2003, it instituted a form of Sharia (Islamic law).

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