Indonesia - Economic analysis of government policies, investment climate and political risk.






INDONESIA: Economic Policy Analysis

This site presents an analysis of the Indonesian government's economic policies compared to a revised list of 34 economic policies as prepared by Aditia Hilman with the McKeever Institute of Economic Policy Analysis (MIEPA) in May of 2011. To read the analysis scroll through this site. To learn more about the background policies, click here  Introduction and Policy Recommendations

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Below is the study by Aditia Hilman , an Indonesian native who currently [May 2011] lives in San Francisco; this study presents the Indonesian government's economic policies as compared to the MIEPA list of policies as outlined above. The ratings herein are based on the following rating scale:


5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 2011. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

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Indonesia - Aditia Hilman

Comparison of Indonesia's economic policies to MIEPA criteria as prepared by native student of Indonesia, Aditia Hilman, studying in the US in May 2011.



        1               5.0          15.0             15.0       100 %

        2               3.5          10.5             15.0        70

        3               3.2           9.6             15.0        64

        4               4.1          12.3             15.0        82

        5               4.3          12.9             15.0        86

        6               4.8          14.4             15.0        96

        7               4.1          12.3             15.0        82

        8               1.3           3.9             15.0        26

        9               2.1           6.3             15.0        42

        10              4.6          13.8             15.0        82

        11              4.3          12.9             15.0        86

        12              2.1           4.2             10.0        42

        13              5.0          10.0             10.0       100

        14              4.8           9.6             10.0        96

        15              4.6           9.2             10.0        92

        16              4.5           9.0             10.0        90

        17              1.5           3.0             10.0        30

        18              2.2           4.4             10.0        44

        19              4.3           8.6             10.0        86

        20              0.5           1.0             10.0        10

        21              4.1           8.2             10.0        82

        22              4.6           9.2             10.0        92

        23              2.3           4.6             10.0        46

        24              2.1           4.2             10.0        42

        25              2.2           4.4             10.0        44        

        26              4.6           9.2             10.0        92

        27              3.5           7.0             10.0        70

        28              2.8           5.6             10.0        56

        29              4.8           4.8              5.0        96 

        30              2.5           2.5              5.0        50

        31              4.6           4.6              5.0        92

        32              2.6           2.6              5.0        52

        33              5.0           5.0              5.0       100

        34              4.6           4.6              5.0        92

   TOTAL              121.7         259.4            375.0        69.2%
                      =====        ======            =====        =====

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1. Freedom from internal control – 5.0

Entrepreneurs in Indonesia can move easily. There are some law to start a big company and businesses. However, to started small business, like food business or services business. Someone can just start a business without any extra fees. Government usually doesn’t really care with charging small businesses. However, to open a franchise, people need to pay a lot. There is actually some fee required in order to open a business in Indonesia, it’s relatively small and some people didn’t even know. For example, if someone want to sell bread. He can make his bread at home (people can have heavy/factory equipment in their house without safety regulation), and doing packaging, also in house. And distribute his bread. Different with American health and fire regulation for food business, Indonesian doesn’t really care about it. You can find people selling food walking around your area almost 24/7. For example, fried rice seller, he usually walking around the area, and when someone want his fried rice, he will cook his fried rice right there in front of your house. You can find these kinds of businesses a lot in Indonesia.

Source: (some picture of small businesses in Indonesia),, personal knowledge.

2. Freedom of speech – 3.5

In term of personal freedom of speech, Indonesian government has a law to protect this right. Any citizen can stood out their opinion about everything. They can post what they did not like in the internet or newspaper, or they can go to demonstrate their dislikes on the street. But, the freedom of speech in Indonesia is excludes religious content. There are some really annoying people and organization that protesting to make the censorship tougher. Recently, the newest issue is they try to “ban” western movies, they didn’t actually ban, they were just raised the single taxes for Imported Film. This actually got pro and contra from many different people. This also really gives an impact on theater business.


3. Effective, fair police force – 3.2

Police force in Indonesia is quite reliable. In term of capturing criminal and keep environment in peace, they doing well. Even though there are still some dangerous places. Indonesian Police doing quite a good job. However, corruption in police force can’t be taken out yet. Well, they actually try to clean-up their organization from the very root, their officers. Recently I heard that they will prosecute people who try to get off laws by give the officer graft. What happens is there a corruption practice that happens on the street for a while in Indonesia. Lots of street laws violation like speeding, trespass red light, violated 3in1 area (area which there must be 3 people or more in the car), and many other, should get ticket and go to court to be evaluated. But lots of people try to give a graft to police officers in place. And they try to cleaning up from this action.

Source:; personal opinion.

4. Private property – 4.1

Indonesia land and property ownership today is somehow secure. Historically, land in Indonesia used to be a regional land or “land owned by us” which now somehow become quite complicated. Properties that owned by private, have to has land certificate and they have to pay land and properties taxes. However, some land that used to be ‘land owned by us” becoming a commercial purpose, some group used it for parking area and gets money from the parking fare. This lead to other group wants this land as well and they ended up fight. Sided from that case, Indonesia building insurance quite becoming popular in the last 10 years there are lots of insurance company try to sell their product intensively. The protection usually include house thief, fire, natural disaster, and miscellaneous.

Source:; (house insurance list).

5. Commercial banks – 4.3

Indonesia Banking System recently in a stable situation. However, in past years there are some cresses happens that hurt Indonesian Banking. Lots of Bank got liquidated because of making wrong financial plans. The last big issue is about Century Bank which actually is a corruption cases. However, Indonesian commercial banking system can give a good loan for private sector to build a business. As example Bank Central Asia (BCA) is one of the biggest commercial bank in Indonesia. They encourage people to save their money in the bank (either short and or long period deposit), they doing monthly and yearly lottery, and the higher the amount of their deposit, the more chance they get. They also offers loan for small businesses with good interest rate. They cooperate with auto-mobile showroom, and houses credit.


6. Communication systems – 4.8

Indonesia has a really good communication system. When Indonesia under Dutch colonized, Dutch has developed communication system inside the country. After Indonesia independence, they started developing their own communication system. They start sending PALAPA series – communication satellite. In fact Indonesian communication speed is not the fastest, but it’s cheap. Mobile-phone monthly fee for example is really cheap. To using smart phone with 24/7 internet, unlimited text and call will cost Rp.150,000.00 or about $18, while comparing to The State it will cost at least $45 to $100 monthly.

Internet usages in Indonesia rose intensively, in the last 10 years, the number of internet user raised from 2million to 30 million people. Newspaper and television also started using multilingual news program (Indonesia, English, and Mandarin) to satisfied more consumer. Lately there’s also some company that provide TV cable with under $5 monthly fee.

Source:;; personal opinion

7. Transportation – 4.1

Transportation in Indonesia is ok. Not the best but people used it a lot. Lot of public transportation accident happens in past few years. Indonesia government has a department (Departemen Perhubungan or DepHub) who deal with public transportation problem. To transporting goods and people from one place to another is not a big deal for Indonesian people. Not like in the US, in Indonesia there is no “strict” safety regulation. In Capital city, Jakarta, yes people required to wear seat belt. But there are no limit on how people overloading a car or bus. If you come to Indonesia don’t be surprised with people sitting on top of the train in daily basis, or it’s also common to see people sitting on a pick-up without any safety belt or even seat.

Despite on safety regulation, transportation in Indonesia for market good is really convenient. There are lots of choices to reduce the prices. Transportation in same Island, people usually prefer Truck over train, train is faster, but truck is cheaper. Transportation between Island, people can choose between air or sea transportation, and for transporting goods, people choose ferry or sea transportation, it’s took a while but it’s cheap. People have lots of choices here in Indonesia.


8. Education – 1.3

Indonesian un-enrolled school rate for children between 12 to 19 years old is 77% or about 8 million children while in United State un-enrolled children in the same age about 17%. Indonesia government barely spent more money to subsidies education. Government 9 years school plan was not effective yet. children in school age in conflict area or less-developed area sometimes barely got an education or sometimes they have to studied outdoor or in a damaged classroom. In less-developed area there’s probably only 1 teacher in entire village, and there also still high possibility lots of people cannot even read. And to get a good education in Indonesia, someone has to go to major city in Indonesia such as Jakarta, Palembang, or Bandung which provided a good university, and it’s not cheap.


9. Social Mobility – 2.1

In Indonesia gap between low and high class is really significant. There are lots of Labor forces who just have Elementary School graduation certificate. To get a job in Indonesia, people not necessarily have a talent or education. It’s more likely how good someone’s connection is. Not all Job opportunities are based on this statement but some are. The higher education someone’s has will increase the opportunity to entering higher social classes. People from lower classes rarely move to high status class. In my opinion Indonesia status classes now is divided by 5 classes, low, middle low, middle, middle high, and high. My opinion, someone or a family is move from one class to one higher class each generation (maybe take about 20years).


10. Freedom from outside control – 4.6

The nationality law is stated in Constitution of Indonesia. With the nationality law, Indonesia government tries their best to protect their citizen. Except if the citizen want to give-up their citizenship from Indonesia by their own will, other country can’t do anything like controlling Indonesian citizen. Indonesian embassy all over the world also helps Indonesian citizen who lives outside the country. Source:;;

11. Foreign currency transactions – 4.3

All the transaction in Indonesia must be done in Indonesia Rupiah (Indonesia Domestic currency). Most of the places in Indonesia even required cash. Different from United State or other developed country, which we can use credit card for transaction. Indonesia market usually still traditionally only uses cash in daily basis transaction. This also becomes the reason Indonesian usually bring more cash in their wallet. But, in some tourist destination area such as Bali, and high-end hotel or resort, they also accept US$ (they will cost more than “actual exchange rate” to give them more profit) besides Indonesian Rupiah.


12. Border control – 2.1

Indonesia is a really large country with massive number on islands and coast line. It’s nearly impossible to 100% protect all this area. Some island even inhabitant. This makes lot of smuggling and terrorist hiding in Indonesian islands or borders. Indonesian NAVY sometimes captured Illegal fisher’s boat from other countries but there are still so many illegal fishers in Indonesian non-commercial seas. Some terrorist from other countries sometimes also captured in Indonesia because they hide in Indonesia which they think the security is not that good. However, Indonesia also done some bilateral policies with some Southeast Asian country such as Philippines to increase the sea patrol and protect the sea borders.

Source :;,

13. Currency – 5.0

Indonesian one and only currency is Indonesian Rupiah (Rp.). The first Rupiah was established in 1946, a year after Independence. Rupiah is controlled by Bank Indonesia.


14. Cultural, language homogeneity – 4.8

Indonesia has many different languages and culture. This may make conflict and it was happens sometimes. In the formal school where ever it is, as long as in Indonesia, Indonesian learned the same language, Bahasa Indonesia. All Indonesian should understand and know how to speak Bahasa Indonesia. But, different cultures make Indonesia really unique and lot of people outside Jakarta will have different ascent. In 1928, Indonesian young Nationalist was come up with Sumpah Pemuda (Youth Pledge) which directly said We are one, We are Indonesia. This also appears in Indonesia official motto, “Bhineka Tunggal Ika” which means unity in diversity.


15. Political effectiveness – 4.6

The Biggest terrorism attack Indonesia for the last 10 years probably we can say 2002 Bali Bombing. Government decided to create a special unit to reduce terrorism in Indonesia. This concludes to forming Detachment 88 in 2003. Detachment 88 is special unit Anti-Terrorist which being fund by US Government through its State Department's Diplomatic Security Service. Detachment 88 is being trained by CIA, FBI, and US Secret Service. Not only terrorist threat, Earthquake and volcanic activities is another big deal in Indonesia. Indonesia government has independent Search and Rescue department or Badan SAR National in short BASARNAS. BASARNAS main job is to search and rescue, Basarnas working area is all over Indonesia region. Basarnas working really fast and efficiently, they act to help natural disaster victims and also connected directly with president.

Source :;;;

16. Institutional stability – 4.5

Indonesia was independence in 1945, right after World War II. We can say Indonesia as “Just born” Country to compare with European Country or American. However, Indonesia has some main Institution even before independence. Back in 1851, during Dutch colonialism, they made a medical assisting school for Indonesia in Java. Even though this medical school to assisting Dutch in war, now this school (known as University of Indonesia) is the favorite public university in the nation. When I was live in Jakarta, capital city of Indonesia, I am witness lot of masses protest and demonstration. The worst one in back in Mei 1998, masses anarchy that leads to chaotic and gloomy day in Indonesia that time. Well, it’s mean Indonesia government not disturbing masses freedom of speech and assembly. Still, Indonesia government pretty stable with some changes in parliament and house of representative members.

Source :; (Bahasa Indonesia - Mei 1998);

Personal Opinion.

17. Honest government – 1.5

Based on, Indonesian corruption perception index get 2.8 out of 10. This rate has increasing from 2.2 in 2006. Indonesia government tried to improved themselves, starting 2002, Indonesia government make or remake their corruption watch department. Based on new government regulation “Law no.30 year 2002, about corruption watch.” Indonesia made a corruption watch committee as known as KPK (Komisi Pemberantasan Korupsi).

Source :; (Bahasa Indonesia)

18. Common laws – 2.2

Indonesia is a democratic country. Masses have freedom of speech and freedom of assembly. In term of Law, Indonesia has a policies that said, every Indonesian citizen have the same right and position in front of the law. This is what governments said and wants people to believe. In fact, there are two major examples we can see that might be slightly different from the track. First, Indonesian huge archipelago make “national law” not reaches all places, some places like in depth of the forest or Indonesian border. Second, as long you have money, you can play little bit with the law. Also, in a traditional market (imagine in one place you can see many different people sell many different goods and seller and buyer negotiate the prices on site), there are some people that asking for “security contribution” from the seller.

Source :;; Personal Opinion

19. Central bank – 4.3

Central Bank of Republic Indonesia or BI (Bank Indonesia) is a state owned bank. BI is an independent department with the main objective to keep the stability of Rupiah for goods and services, and exchange rate stability against foreign currencies. BI made an independent judgment, but BI still restricted with National or government policies and BI still collaborating with President and House of Representatives to consulting their action. It was also Bank Indonesia jobs to evaluating monetary policy implementation in the previous year as well as monetary policy planning and the setting of monetary target for the year ahead. Also to published the information to public via mass media.

Source :;,20110311-319241,uk.html

20. Domestic Budget Management - 0.5

Indonesia government spending was 86% more than tax revenues. Indonesia Gross National expenditures are about 98.41 % of GDP or about $504 billion. Indonesia national tax revenues are about 12.33% of GDP.

Source :;

21. Government Debt – 4.1

Indonesia annual external debt in the end of 2010 was $156 billion. Based on Indonesia GDP, rate of debt-to-GDP was 28%. Indonesia debt percentage keep decreasing from year to year since the worse was in 1998 caused by global financial crisis. In fact, Indonesia external debt does not decreasing as fast as the debt-to-GDP percentage. The amount of Indonesia external debt still around $150 billion.

Source :;,,contentMDK:20994026~pagePK:141137~piPK:141127~theSitePK:226309,00.html;;

22. Economic statistics – 4.6

Indonesia has a governmental institution that work on economy statistics, Badan Pusat Statistik. BPS done a good job and has plenty data which were accurate and detailed. These Data and statistic was published in BPS website ( Unfortunately, BPS data is in Bahasa, Indonesia language. However, BPS has detailed data about consumer goods prices changes. BPS data also includes National data, such as social-cultural, employment, poverty, health, ect. Some of them are up to date some of them were in 2008 or 2009. World Bank also published Indonesia Economy data.

Source :;,,menuPK:287097~pagePK:141132~piPK:141109~theSitePK:226309,00.html.

23. Protection of public health and safety – 2.3

Indonesia has a weak protection of public health and safety. Government and NGO as well as World Health Organization try to approach and help these health problems. Indonesia had experienced 175,000 deaths by TB. 20,000 women were died during pregnancy and delivery. Infant Mortality rates in Indonesia per years 2011 was estimated 27.9 per 1000 live births. While in United State IMR estimate in 2011 are about 6 per 1000 live births.

Source :;;;

24. High wage policies – 2.1

Indonesia wages is really low. Newly minimum wages in Indonesia is about $130 per month. That minimum wages is about 25% of GDP per capita. From my view, most of Indonesia faced economy difficulties in their live. While Indonesia minimum wages is low in Indonesia, living cost there is about 1:10 United State living cost. Working people in Indonesia however can maintained to got their basic needs such as kost (room rented in Indonesia, Apartment is considered luxury living places.), foods, clothes, ect. Also to remember Indonesia poverty rate was in a high point.

Source :;

25. Environmental protection 2.2

Indonesia owned weak natural resource governance, poor institutional coordination, and it was really hard to doing all monitoring in resource and end environmental quality. Indonesia government has some regulations and policies about environment protection, but those regulation and policies does not really effective and weak. There are some non-government organizations in Indonesia that concern about Indonesian environment, Such as World Wildlife Fund – Indonesia, The Borneo Orangutan Survival (BOS) Foundation, WALHI (The Indonesian Forum of Environment), Yayasan Merah Putih, Bike to Work – Indonesia(encourage masses to use their bike instead of car), and many more.

The reason Indonesia had a hard time dealing with environmental resource are listed below. Indonesia has more than 16,000 islands widely spread from west to east. These islands support tremendous diversity of animal and plant inside their rain forests, coastal, and marine areas. However, rapid economy growth has been effected environmental and made massive problem. There natural resource was exploited by some people or organization that wants to get benefit for their own. Natural disaster such as earthquake, tsunami, and volcanic eruption also happens in Indonesia. The other worse problem is urban pollution of air and water.

Source :,,contentMDK:20266323~menuPK:537827~pagePK:34004173~piPK:34003707~theSitePK:502886,00.html;; personal opinion

26. Strong army – 4.6

Indonesia National Defense Force (ABRI) is strong and has good reputation. Based on, Indonesia overall rank is 14th in the world. In 2010, President Susilo Bambang Yudhoyono said government will increased defense budget to $ 4.6 billion. This budget is far from one-third of Indonesia GDP. Indonesia also planned to add more submarines and Hercules. Indonesia has been discussing with Lockheed Martin to buy 10 more C-130 military transports to their forces. Indonesia government also considering buy 12 units submarines to add their navy power from Russia, China, or South Korea in the next 10 years.

Source :;;;

27. Foreign trade impact – 3.5

Total export import in Indonesia in 2010 is $230.6 billion. Meanwhile, Indonesia 2010 GDP was $1.033 trillion. Which means it only gave about 23% impact in Indonesia GDP in 2010 while good developed country should have about 30% or more export import impact to their national GDP. Indonesia total exports in 2010 is $146.3 billion, it has increasing from $119.3 billion in 2009. In other hand, their total import has been decreasing significantly from $111.1 billion to $84.3 billion in 2010.

Source :;

28. Protection of foreign currency earning enterprises – 2.8

Indonesia is an agriculture country. Indonesia has different kind of import and export policies. Indonesia had made some export policies, basically to increasing domestic commodity, such as raw lumber woods, cocoa, coffee, and palm oil. In 2001, Indonesia once again came up with prohibited in lumber wood export. This policy has really big effect for domestic and export commodity, this policy also triggered by global warming issues which ignited about the same time. However, this policy decreased domestic lumber price and help decreasing illegal lodging. Indonesia government has really interesting policy in palm oil export. Government usually increase and decrease palm oil’s export taxes based on international market price.

Source :;;;

29. Management of foreign currency budget – 4.8

Indonesia trade surplus in 2010 was $62 billion. Based on Indonesia 2010 GDP, $1.033 trillion, Indonesia foreign trade was about 2.7% of 2010 GDP. It was not 0% but it was lower than 10% of the national GDP. Indonesia total exports in 2010 is $146.3 billion, it has increasing more than $25 billion from 2009. In other hand, their total import has been decreasing significantly from $111.1 billion to $84.3 billion in 2010.

Source :;

30. Layers of collective action - 2.5

Indonesia is a wide spread country with 5 main Island, and more than 13,000 small islands all across the country. This fact make this country have lot of differences and it also really difficult for government to take good care of all of the masses. And there is also a fact that Indonesian communities divided by two, government and private. However, Indonesian form of politic is Democracy, it’s called Democracy Pancasila, make people in Indonesia have rights to have an action in the community. In Indonesia, people usually did not elected for their school board. School board usually elected by regional government for public school, and private institution elected private school board. But, there is a national exam for all school despite it is a public or private school and it is a graduation requirement for junior high school and high school, made by Ministry of National Education(KemDikNas). Indonesian have a right to speak up their opinion and involved in their community but government also have the right to give limitation to one organization or community.

Source :;

31. Pro-business climate - 4.6

Indonesia is the second best economy performer in Asian based on 2009. More than that, Indonesia 40 richest men are all Enterprise leader and top businessmen and marketer. In 2010 their average wealth increased significantly and of course this will create more businesses and give opportunities for job seeker. The Hartono Brothers is the richest Indonesian, their sum wealthy in 2009 are $6 billion and in 2010 it almost doubled to $11 billion. They owned the clove of cigarette, Djarum, and also owned the country’s largest bank, Bank Central Asia. Their of course enjoy high social status and encouragement from the government. Without these entrepreneurs, Indonesian GDP and economy would not see an increasing.

Source :;

32. Government enterprises - 2.6

Indonesia have lot of State Owned Enterprise (BUMN) in different field. Most of State Own Enterprise was made to help masses in general. State Owned Enterprise such as PT Angkasa Pura 1 and Angkasa Pura 2 (airport and transport service), Perum DAMRI, Perum Percetakan Uang RI (money printing), PT Perusahaan Listrik Negara (electric), PT Bio Farma (pharmacy), PT Dana Reksa, PT Bank Rakyat Indonesia (finance), PT. Telkom (telecommunication), ect.

Indonesia State Owned Enterprise shown a positive growth in 2010. This shown by decreased of financial lost in 2010. In 2006 total enterprises that had financial lost is 33 and in 2010 only 17 enterprises. And with few subsidized from government, State Owned Enterprise can still stabile, but it will give effect in increasing market price and it may make a difficulties for masses. Indonesian State Owned Enterprise may not that strong yet but their slowly growth and give a positive growth.

Source :;;

33. International security agreements - 5.0

Indonesia have some international security agreements and their National Defense Force (ABRI) are strong and have good reputation. Indonesia have security agreement with several countries. First, Indonesia is a member of ASEAN (Association of South East Asian Nations), in other word there are connections between Indonesia and 9 other South East Asia Country. Outside ASEAN, Indonesia also allied with several country such as United State, Australia, New Zealand, Britain, France, and India. Indonesia also supplied their troops to United Nation Peacekeeping Force.

Based on, Indonesia overall rank is 14th in the world while United State is the first.

Source :;;;

34. Protection of domestic enterprises from government mandated costs - 4.6

For an entrepreneur in the United State especially who want to start a food business, there are many regulation and required installed equipment. Food Preparing and service business must fulfill Safety and Environmental Regulation (installed a good washing facilities and or dishwasher, also fire prevention), Food Handling license, and Business license. Meanwhile in Indonesia there are no such things to start food business. People in Indonesia does not really care about food Higgins or fire prevention inside restaurant’s kitchen, usually there are a lot of food business on side walk. Starting food business in Indonesia cost a lot less than in United State. That also the reason why franchise business (McDonald, Burger King, Starbuck, Quickly, Kinokuniya, ect.) sprouts all over Indonesia especially in the big cities.

Source :;;


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