Indonesia's banking sector, deep in crisis since
1998, is finally beginning to recover. The sale last month by
the government of one of the biggest banks nationalized after
the sector's collapse, and a further successful international
bond sale by the biggest state bank, has improved investor
sentiment, prompting optimism about further privatizations
still in the pipeline.
The optimism reflects growth in confidence about the broad
stability of the macroeconomy. This has shown significant
improvement across most indicators over the past year, including a
strengthening currency, reduced inflation and debt, continuing
growth of around 4% and a stable export performance. Only incoming
foreign investment lags, still dogged by fears about corruption and
a dysfunctional legal system.
Worries about political risk have diminished following
Indonesia's crackdown on terrorism in the wake of the Bali bombing
last year, and its comparatively muted opposition to the war in
Iraq.
Brightening foreign investment
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