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Two years ago, I wrote in these pages that the key to success for Indonesia’s next president would be to reduce the country’s sovereign risk and risk of inflation. Why? Because these affect the yield on long-term government bonds and therefore impact the cost of capital for both debt and equity holders.

For example, the cost of capital for a business in Indonesia is 8 percent higher than a comparable one in Malaysia and 10 percent higher than in Singapore. This means that a similar performance could prove unprofitable in Indonesia, but profitable in Malaysia and in Singapore. Indonesia’s relatively higher risk has kept potential foreign investors from considering Indonesia. Foreign direct investment of more than $100 billion per year has powered China forward to become the world’s second-largest economy. Indonesia’s foreign investment and trade has been tiny by comparison.

President Susilo Bambang Yudhoyono’s actions to counter corruption, terrorism and other uncertainties have dramatically reduced the cost of capital in Indonesia. Rewards have come quickly.

The Jakarta stock market had a spectacular 2010. French and Indian companies, among many others, pledged billions of dollars in future investment. Economic growth reached 6.1 percent, closer to the 7.5 percent that a group of experts claimed would, if sustained for 30 years, make Indonesia a top-five global economy. A second “I,” for Indonesia, in the BRIC acronym is looking less far-fetched. The Indonesian political and economic system is held up as a role model for the restive nations of North Africa and the Middle East. Indonesia’s voice matters more at Asian and global summits.

However, worries remain. The central bank has been vigilant against inflation, but other countries have been less stringent, and their inflation could damage Indonesia.

Global food, energy, and mining prices could hurt ordinary Indonesians, as subsidies become less affordable. Religious extremists and intolerance toward minorities could restrain the move toward modernity outside the large cities and scare investors away.

Corruption, complacency and stubbornness have slowed down the rapid elimination of problems such as Jakarta’s traffic and reduced investments in geothermal and coal exploration.

Employment regulations regarding the hiring and firing of employees and observing public holidays have made Indonesian workers expensive relative to their skills, keeping unemployment high.

The government has still not attempted to rebrand the country. Foreigners’ perceptions of Indonesia are antiquated and negative, while those of Malaysia, India and Singapore are positive.

Furthermore, there is no credible successor to the president waiting in the wings. Sri Mulyani Indrawati, the finance minister with credibility among investors, was whisked out of the country when she attempted to rock the establishment.

The president can sustain the improvements that he has achieved. But he must find the courage to make tough decisions, unpopular among the privileged, and fight complacency by making decisions quickly. He must hold his colleagues and those who report to him accountable for achieving clearly defined targets, with demotion and dismissal for those who fail to progress a bold agenda. Yudhoyono’s time is limited. There is a lot of work to be done.

Lower risk will bring new types of investment to Indonesia. Bold infrastructure projects will unlock its value and spread the wealth from Java to Sumatra, Kalimantan and Papua, as well as the smaller and more remote islands.

A more enticing business environment will bring innovation and greater productivity to activities such as rice farming and mining. In addition, entrepreneurs will find that they can generate value from making technologically advanced investments in Indonesia, moving the country from selling raw materials, whether agricultural produce and minerals, toward more lucrative downstream refined products (for example, steel rather than iron ore, diesel rather than poor quality coal). More Indonesians will have greater opportunities than they could have possibly imagined. Poverty rates will fall. Disease will abate. Natural disasters will have a less devastating human and financial impact.

A failure to sustain gains hurts the poor, the young and the entrepreneurial — not only of this generation, but of generations to come. Congratulations, Mr. President. You have earned top marks so far. Now your legacy will depend on endorsing a successor with the fortitude and integrity to move forward along the same path.

Erik Stern is president international of Stern Stewart & Co. and vice chairman of Stern Stewart Capital Partners.