San Jose City Influence of Military Dictatorship on Economic Development Case Analysis
Business Finance
Please select and read one of the following cases in the textbook and submit your analysis. Students are required to write at least 400 words per case (not 00 words per question of each case). This does not include assigned questions. At the top of the first page, include the word count. I require minimum word counts to give students an idea of how much work is expected. Otherwise, students may do much less than they need to do in order to develop their critical and analytical thinking skills.
Opening Case: The Political and Economic Evolution of Indonesia
QUESTION 1: Using Myanmar as an example, discuss how “crony capitalism” and strict control of dissent impact the development of a political and economic system.
QUESTION 2: After President Suharto’s resignation in 1998, the political and economic development of Indonesia emerged from an era of corruption and strict control. How can the changes implemented to date impact the country? What else needs to be done by Indonesia’s leaders to continue this trend?
Closing Case: Political and Economic Reform in Myanmar
QUESTION 1: Reflect on how military dictatorships like the one in Myanmar hamper economic development. Discuss the consequences of this type of political system.
QUESTION 2: Since 2010, Myanmar’s new president has implemented a series of political and economic reforms. How will these reforms change the nation? What do they mean for the country’s citizens?
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Submission Rules:
These case assignments are to be completed individually. Please use your own words when completing the assignments. There is no required format, but you must write in organized paragraphs with complete sentences. Do not use bullet points. Do not use direct quotes. You can only upload word/text files to Canvas. Do not upload pdf/pages files. You can also copy and paste text into the text/content area.
The Political and Economic Evolution of Indonesia
Opening Case
Indonesia is a vast country. Its 260 million people are spread out over some 17,000 islands that span an arc 3,200 miles long from Sumatra in the west to Irian Jaya in the east. It is the most populous Muslim nation—some 86 percent of the population count themselves as Muslims—but also one of the most ethnically diverse. More than 500 languages are spoken in the country, and separatists are active in a number of provinces.
For 30 years, the strong arm of President Suharto held this sprawling nation together. Suharto was a virtual dictator who was backed by the military establishment. Under his rule, the Indonesian economy grew steadily, but there was a cost. Suharto brutally repressed internal dissent. He was also famous for “crony capitalism,” using his command of the political system to favor the business enterprises of his supporters and family. In the end, Suharto was overtaken by massive debts that Indonesia had accumulated during the 1990s. In 1997, the Indonesian economy went into a tailspin. The International Monetary Fund stepped in with a $43 billion rescue package. When it was revealed that much of this money found its way into the personal coffers of Suharto and his cronies, people took to the streets in protest, and he was forced to resign.
After Suharto, Indonesia moved rapidly toward a vigorous democracy. In 2004, the country’s first directly elected president, Susilo Bambang Yudhoyono, took power. Yudhoyono was elected to a second term in 2009. In 2014, he was succeeded by the current president, Joko Widodo. Freedom House, which tracks the state of political freedom around the world, notes that Indonesia has “free and fair elections,” although they criticize the country for restrictions on civil liberties, freedom of movement, and freedom of the press. Freedom House also notes that Indonesia has high levels of public corruption. Transparency International, which ranks countries according to their level of corruption, has given Indonesia a poor score. It ranked Indonesia 88 out of the 168 nations in 2015 with a score of just 36 out of a possible 100.
On the economic front, progress has been somewhat halting. Although Indonesia has consistently grown its economy, growth has been at a lower rate than in other large developing nations such as India and China. Economic liberalism has never really taken hold in Indonesia. Many industries are sheltered from foreign competition by protectionist policies. These policies have their roots in the widespread belief that foreigners have long plundered Indonesia’s resources while leaving the country impoverished. In 2014, the list of industries protected from foreign competition was expanded to include onshore oil extraction and e-commerce. To compound matters, the government has frequently imposed price controls and heavily subsidized certain goods, most notably gasoline, all of which distorts the market mechanism.
Moreover, several sectors are still dominated by inefficient state-run enterprises. There are over 140 state-run enterprises in Indonesia accounting for about 20 percent of the county’s gross domestic product. State-owned enterprises are widespread in energy, power production, transportation, aviation, agriculture, banking, and telecommunications. The country also suffers from chronically poor infrastructure, much of which is managed by state-owned enterprises. There are simply not enough power stations, roads, ports, etc. Indonesia has five times the population of the United Kingdom but only half the power generating capacity. Due to poor transportation infrastructure, logistics costs in Indonesia are 50 percent more than in Thailand and twice as much as in Malaysia.
In 2014, Indonesia’s new president, Joko Widodo, pledged to liberalize the economy and improve infrastructure. In early 2015, Widodo abolished the state subsidy on gasoline, allowing the market to set prices. The subsidy was costing the government almost $20 billion a year, or 15 percent of total government outlays. Widodo also announced plans to boost public infrastructure, investing in 5 deep-sea and 24 feeder ports, 10 airports, 25 hydroelectric dams, 2,000 kilometers of roads, and 10 industrial parks. These acts were followed by a number of measures designed to deregulate the economy. Import restrictions on some goods were removed, the time required to process investment permits was reduced substantially, and some onerous business regulations were abolished. Widodo has also repeatedly signaled that Indonesia will be more welcoming to foreign investment than hitherto.
Despite these measures, Indonesia still faces significant economic headwinds. One major problem: the economy is overly dependent upon commodities, the prices of which have fallen sharply in the wake of economic slowdown in China. Then there is the persistently high level of corruption, which continues to burden and distort business activity in the country. There is also no move to reduce the number of state-owned enterprises. Many critics feel that for Indonesia to unleash its full potential, it must do more to reduce corruption, privatize inefficient state-owned companies, further deregulate its economy, continue to improve its infrastructure, and do more to attract long-term foreign investors.
Sources: Freedom House, “Freedom in the World 2015”; “A Survey of Indonesia: Time to Deliver,” The Economist, December 11, 2004; “Spicing up Growth,” The Economist, May 9, 2015; “The Unstimulating Stimulus,” The Economist, October 17, 2015; CIA World Factbook, 2015; Mukul Raheja, “The Dire Need for Reform of Indonesian SOEs,” Jakarta Post, February 26, 2014.
POLITICAL AND ECONOMIC REFORM IN MYANMAR
For decades, the Southeast Asian nation of Myanmar (formerly known as Burma) was an international pariah. Ruled by a brutal military dictatorship since the 1960s, political dissent was not tolerated, the press was tightly controlled, and opposition parties were shut down. Much economic activity was placed in the hands of the state—which effectively meant the hands of the military elite, who siphoned off economic profits for their own benefit. Corruption was rampant. In the 1990s, America and the European Union imposed sweeping economic sanctions on the country to punish the military junta for stealing elections and jailing opponents. The de facto leader of the country’s democratic opposition movement, Nobel Peace Prize–winner Aung San Suu Kyi, was repeatedly placed under house arrest from 1989 through 2010.
None of this was good for the country’s economy. Despite having a wealth of natural resources, including timber, minerals, oil, and gas, the economy stagnated while its Southeast Asian neighbors flourished. By 2012, Myanmar’s GDP per capita was $1,400. In neighboring Thailand, it was $10,000 per capita. The economy was still largely rural, with 70 percent of the country’s nearly 60 million people involved in agriculture. This compares with 8.6 percent in Thailand. Few people own cars or cell phones, and there are no major road or rail links between Myanmar and its neighbors—China, India, and Thailand.
In 2010, the military again won elections that were clearly rigged. Almost no one expected any changes, but the new president, Thein Sein, was to defy expectations. The government released hundreds of political prisoners, removed restrictions on the press, freed Aung San Suu Kyi, and allowed opposition parties to contest seats in a series of by-elections. When Aung San Suu Kyi won a by-election, thrashing her military-backed opponent, they let her take the seat, raising hopes that Myanmar was at last joining the modern world. In response, both America and the European Union began to lift their sanctions.
Thein Sein also started to initiate much-needed economic reforms. Even before the 2010 elections, the military had begun to quietly privatize state-owned enterprises, although many were placed in the hands of cronies of the regime. In 2012, Thein Sein stated that the government would continue to reduce its role in a wide range of sectors, including energy, forestry, health care, finance, and telecommunications. Land reforms are also under way. The government also abandoned the official fixed exchange rate for the Myanmar currency, the kyat, replacing it with a managed float. From 2001 to 2012, the official exchange rate for the kyat varied between 5.75 and 6.70 per U.S. dollar, while the black-market rate was between 750 and 1,335 per U.S. dollar. The official fixed exchange rate had effectively priced Myanmar’s exports out of the world market, although it did benefit the military elite who were able to exchange their worthless kyat for valuable U.S. dollars on very favorable terms. Implemented in April 2012, the managed float valued the kyat at 818 per U.S. dollar. The dramatic fall in the value of the kyat is expected to stimulate demand for exports from Myanmar and help the economy grow.
To further encourage economic growth, the government signaled that it would welcome foreign direct investment and encouraged foreign enterprises to enter into partnerships with domestic enterprises in its underdeveloped telecommunications sector. General Electric and IBM are among the companies stating that they may invest in the country. Between 2010 and 2014, Myanmar recorded the largest increase in inward FDI of any country in Southeast Asia apart from the Philippines, although admittedly from a low base.
In November 2015, general elections were held in Myanmar. These were the first free and fair elections in 25 years. The results were stunning. The opposition party, the National League for Democracy, led by Anug San Suu Kyi, won 81 percent of the seats in parliament, sweeping the military-backed government out of office. It now seems likely that Myanmar will finally emerge from its isolation.
Sources: Lex Rieffel, “Myanmar’s Economy Confronts Tough Policy Challenges,” East Asian Forum, July 31, 2012; “Opening Soon: Myanmar Gets Ready for Business,” The Economist, March 3, 2012; “Myanmar on the Move,” The Economist, November 21, 2012; CIA World Factbook, 2015, www.cia.gov/library/
