2013 Index of Economic Freedom

Indonesia

overall score56.9
world rank108
Rule of Law

Property Rights30.0

Freedom From Corruption30.0

Limited Government

Government Spending89.2

Fiscal Freedom83.4

Regulatory Efficiency

Business Freedom50.2

Labor Freedom50.8

Monetary Freedom75.5

Open Markets

Trade Freedom75.0

Investment Freedom35.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 241.0 million
  • GDP (PPP):
    • $1.1 trillion
    • 6.5% growth
    • 5.9% 5-year compound annual growth
    • $4,666 per capita
  • Unemployment:
    • 6.6%
  • Inflation (CPI):
    • 5.4%
  • FDI Inflow:
    • $18.9 billion
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Indonesia’s economic freedom score is 56.9, making its economy the 108th freest in the 2013 Index. Its score is 0.5 point better than last year, with significant improvements in financial freedom and freedom from corruption that more than offset declines in business freedom and the management of public finance. Indonesia is ranked 20th out of 41 countries in the Asia–Pacific region, and its overall score is below the world average.

Indonesia, Southeast Asia’s biggest economy, has undertaken wide-ranging reforms to address various 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 through modernization of the financial sector.

Despite some 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 pervasive corruption, exacerbated by a weak judicial system, adds business risk. During the first half of 2012, the government reintroduced trade and investment barriers that include limits on ownership of banks and mines and export taxes.

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Background

Indonesia is the world’s most populous Muslim-majority democracy. In the years since 1998, when long-standing authoritarian ruler General Suharto stepped down, Indonesia’s nearly 250 million people have enjoyed the blossoming of a wide range of political freedoms, and participation in the political process is high. President Susilo Bambang Yudhoyono has attacked corruption and tried to encourage much-needed foreign investment, but the weak rule of law remains a major impediment to attracting capital. As a member of the G-20 and a driving force within the Association of Southeast Asian Nations, Indonesia plays a growing role in international economic policy discussions. The increasingly modern and diversified economy has recovered strongly from the global recession.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 30.0 Create a Graph using this measurement

Property rights are generally respected, but enforcement is inefficient and uneven. The judicial system is not fully independent and remains vulnerable to political influence. In the absence of an efficient legal framework, court rulings can be arbitrary and inconsistent. Corruption remains pervasive, although the Anti-Corruption Commission (KPK) launched a number of high-profile cases in 2012.

Limited GovernmentView Methodology

The top income tax rate is 30 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden equals 11.6 percent of total domestic income. Government spending has increased to 19 percent of GDP, and the budget deficit is 1.6 percent of GDP. Public debt is low at 25 percent of total domestic output.

Regulatory EfficiencyView Methodology

Launching a business takes more than a month on average, and licensing requirements cost slightly less than the level of average annual income. Overall regulatory efficiency is weak. Regulations concerning the creation and termination of employment relationships are relatively costly. State interference in the market distorts prices.

Open MarketsView Methodology

The trade-weighted average tariff rate is 2.5 percent, but trade is constrained by costly non-tariff barriers. Although the country publicly welcomes foreign investment, many investors, both foreign and domestic, face inconsistencies in the investment codes and erratic enforcement. The financial sector remains stable, and the Financial Services Authority has been formed to improve the sector’s regulatory efficiency.

Country's Score Over Time

Bar Graph of Indonesia Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Indonesia to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong89.3-0.6
2Singapore880.5
3Australia82.6-0.5
4New Zealand81.4-0.7
5Taiwan72.70.8
6Japan71.80.2
7Macau71.7-0.1
8South Korea70.30.4
9Malaysia 66.1-0.3
10Thailand 64.1-0.8
11Kazakhstan63-0.6
12Mongolia61.70.2
13Sri Lanka60.72.4
14Azerbaijan59.70.8
15Kyrgyz Republic 59.6-0.6
16Cambodia58.50.9
17The Philippines58.21.1
18Fiji57.2-0.1
19Samoa57.1-3.4
20Indonesia56.90.5
21Vanuatu56.60.0
22Tonga56-1.0
23India55.20.6
24Pakistan 55.10.4
25Bhutan55-1.6
26Papua New Guinea53.6-0.2
27Tajikistan53.40.0
28Bangladesh 52.6-0.6
29China51.90.7
30Vietnam51-0.3
31Nepal50.40.2
32Micronesia50.1-0.6
33Laos50.10.1
34Maldives49-0.2
35Uzbekistan460.2
36Kiribati45.9-1.0
37Solomon Islands45-1.2
38Timor-Leste43.70.4
39Turkmenistan42.6-1.2
40Burma39.20.5
41North Korea1.50.5
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