Indonesia tends to lavish government spending on its rich, not the poor who need the state's help. These facts point to institutional weaknesses that will hinder long-term development. The technocratic excellence that has fostered a stable macroeconomy is not backed up by a competent bureaucracy independent of politics. The corruption, together with the extraordinary level of income inequality, delegitimizes the state and serves as the basis for future instability. Our models show that Malaysia's strong political institutions can drive growth even if the ruling politicians change.
Regulators exercise firm control over the economy.
Social investment is relatively high and well-targeted. The poor receive adequate nutrition, sanitation, and education. Despite his rhetoric, Prime Minister Mahathir is no fool. Semitic references play well among the Malay Muslim population. Brilliant politician that he is, the prime minister has even managed to bolster his legitimacy without significantly scaring off foreign investors.