While the Indonesian Fund (NYSEMKT:IF), a closed ended fund, was up 84% last year and is off to another great start this year, many investors are put off by high levels of corruption in the country. So it is encouraging that John Aglionby reports that President Susilo Bambang Yudhoyono fired five members of Indonesia's cabinet yesterday in a bid to reinvigorate his flagging war on corruption, a key part of the president's reform programme. The attorney general and justice minister were among those dismissed.
Many would categorize Indonesia as a relatively poor country, but I beg to differ. I have toured Indonesia from tip to tip and it is a country with many assets and great promise. Rich in natural resources, a talented and young population, strategically positioned to benefit from Asian growth, a size three times the that of Texas and the worlds fourth largest population. As a relatively young democracy and developing economy it lacks an important ingredient for economic growth: capital and a fiscal system to allocate it wisely.
Indonesia has taken the brave step of opening its financial services sector to majority investment by international investors; let's also open up other areas such as infrastructure and power. The most important reform to make Indonesia more attractive to international capital is to set up a transparent and clear approval process to cut out red tape and corruption. Then reinvigorate a previously announced plan to privatize some of Indonesia's 145 largest state owned companies to increase their profitability and raise more government revenue. Finally, why not follow ten other countries by putting in place a flat tax to rein in bureaucracy, stymie corruption and stimulate growth and productivity?