Embed This Data
- GDP (PPP):
- $2.7 trillion
- 5.0% growth
- 5.8% 5-year compound annual growth
- $10,641 per capita
- Inflation (CPI):
- FDI Inflow:
Indonesia has undertaken various reforms to address structural weaknesses and improve competitiveness. Recent reform measures have put greater emphasis on improving regulatory efficiency, enhancing regional competitiveness, and creating a more vibrant private sector by modernizing the financial sector. In January 2015, the subsidy for gasoline was eliminated.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 59.4 (up 1.3 points)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 99th
- Regional Ranking: 21st in the Asia–Pacific Region
- Notable Successes: Trade Freedom and Monetary Freedom
- Concerns: Property Rights, Corruption, and Labor Freedom
- Overall Score Change Since 2012: +3
Despite apparent progress, Indonesia’s growth potential remains fragile and hampered by inefficient legal and investment regimes. Political interference in the private economy discourages dynamic economic expansion, and the majority of Indonesia’s workforce is employed in the informal sector. Pervasive corruption exacerbated by a weak judicial system adds to business risk.
Indonesia is the world’s most populous Muslim-majority democracy. Since 1998, when long-serving authoritarian ruler General Suharto stepped down, Indonesia’s 250 million people have enjoyed a widening range of political freedoms, and participation in the political process is high. Joko Widodo, former businessman and governor of Jakarta, won a tight race for the presidency in 2014, pledging to end corruption and promote economic reform. Weak rule of law remains a major impediment to attracting capital. As a member of the G20 and a driving force within the Association of Southeast Asian Nations, Indonesia plays a growing role at the multilateral level. Its increasingly modern and diversified economy has recovered from the 2009 global recession.
Corruption among civil servants and elected officials remains pervasive and inhibits foreign direct investment. In January 2015, police responded to a government investigation of corruption in law-enforcement agencies by arresting the deputy chief of the Anti-Corruption Commission. The judiciary has demonstrated its independence in some cases. Property rights are generally respected, but enforcement is inefficient and uneven.
The top individual income tax rate is 30 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 11.8 percent of total domestic income. Government spending amounts to 19.1 percent of GDP, and the budget deficit is below 2 percent of GDP. Public debt still equals about 25 percent of total annual domestic output.
Overall regulatory efficiency is weak, and completing licensing requirements can be costly. Regulations concerning the creation and termination of employment are rigid, undermining the development of a dynamic labor market. The government responded to falling oil prices in late 2014 by lowering fuel subsidies, removing distortions in the market but keeping consumer price inflation artificially elevated.
Indonesia’s average tariff rate is 2.3 percent. Non-tariff barriers, including licensing and quotas, further distort trade. Numerous state-owned enterprises distort the economy. Foreign investment in several sectors of the economy is capped. The financial sector remains stable, and a Financial Services Authority has been formed with the stated goal of improving regulatory efficiency in the sector.