Business Environment in Indonesia Needs Political Stability
The business environment in Indonesia needs political stability as well as a conducive investment climate to grow. However, if there exists a high degree of social unrest then the central government can offer as many incentives as it wants but entrepreneurs will be hesitant to engage in investment and business expansion. Currently, there is quite some unrest in the capital city of Jakarta. Ever since a manipulated video of Jakarta Governor Basuki Cahaya Purnama (Ahok) surfaced in which he allegedly insulted Islam, there has been outrage among Islamic hardliners. This brings economic costs.
For instance, when on Friday 4 November 2016 between 100,000 and 200,000 demonstrators took the streets in Central Jakarta to demand the arrest of Ahok (for blasphemy), it caused losses of about IDR 2.9 trillion (approx. USD $218 million) due to damages (during the evening hours it turned into fights between protesters and the police) and missed revenue as some 20,000 shops kept their doors shut when the demonstration was held.
Although Ahok was named a suspect in the blasphemy case (meaning it will become a court case), there are still rumors of more demonstrations being organized by Muslim hardliners in Jakarta in order to show people's rejection of Ahok. These rumors give rise to uncertainty about the political climate of Indonesia.
Another rumor that circulates on social media suggests that on 25 November 2016 there will be a run on Indonesian banks. Allegedly, Islamic hardliners are encouraging people to withdraw money from banks massively on 25 November in an effort to damage the economy. This is another form of protest against the government as hardliners suspect that the central government will side with Ahok. Although this rush money issue could be a hoax its circulation in social media does indicate the degree of confusion that currently exists in Indonesia.
Both Indonesian Finance Minister Sri Mulyani Indrawati and Chief Economics Minister Darmin Nasution responded to the rush money issue, saying they hope it is just a hoax and that the people behind this action fail to defend the interests of the nation.
Considering chances are big that Ahok will not be found guilty of blasphemy by the Jakarta court (as the full video of his speech shows that he criticizes people, not the Quran), there may be more unrest to come because Islamic hardliners will most likely not accept this verdict.
Meanwhile, the process of de-industrialization that occurred over the past couple of years in Indonesia forms another major concern. A well developed manufacturing industry is important to boost the nation's exports and generate new employment opportunities. In 2004 the manufacturing industry contributed 28 percent to Indonesia's gross domestic product. Last year, however, the figure declined to 18 percent.
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