2020 Index of Economic Freedom

Indonesia

OVERALL SCORE67.2
WORLD RANK54
Rule of Law

Property Rights59.8

Judicial Effectiveness56.2

Government Integrity37.2

Government Size

Tax Burden83.4

Government Spending91.7

Fiscal Health90.2

Regulatory Efficiency

Business Freedom70.0

Labor Freedom49.2

Monetary Freedom78.4

Open Markets

Trade Freedom80.8

Investment Freedom50.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 264.2 million
  • GDP (PPP):
    • $3.5 trillion
    • 5.2% growth
    • 5.0% 5-year compound annual growth
    • $13,230 per capita
  • Unemployment:
    • 4.3%
  • Inflation (CPI):
    • 3.2%
  • FDI Inflow:
    • $22.0 billion

Indonesia’s economic freedom score is 67.2, making its economy the 54th freest in the 2020 Index. Its overall score has increased by 1.4 points, primarily because of a higher property rights score. Indonesia is ranked 12th among 42 countries in the Asia–Pacific region, and its overall score is well above the regional and world averages.

The Indonesian economy has been climbing steadily higher in the ranks of the moderately free since 2017. GDP growth has moved up sharply as well during the past five years.

The second Widodo administration is expected to continue efforts to encourage more private investment in infrastructure and manufacturing. The government can take long strides toward achieving that goal by reducing corruption, modernizing and simplifying investment regulations, and ensuring that labor market controls (such as minimum wages) do not arbitrarily stifle employment growth.

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Background

Indonesia is the world’s most populous Muslim-majority country. Since 1998, when long-serving authoritarian ruler General Suharto stepped down, Indonesia’s 262 million people have enjoyed a wide range of political freedoms, and participation in the political process is high. Joko Widodo, former businessman and governor of Jakarta, won a five-year presidential term in 2014 and was reelected in 2019. Indonesia is Southeast Asia’s largest economy. Key exports include mineral fuels, animal and vegetable fat, electrical machinery, rubber, machinery, and mechanical appliance parts. Continued improvements in infrastructure should help to reduce high transport and logistical costs. Indonesia’s significant untapped maritime resources could spur future development, but barriers to international trade and investment undermine prospects for growth.

Rule of LawView Methodology

Property Rights 59.8 Create a Graph using this measurement

Judicial Effectiveness 56.2 Create a Graph using this measurement

Government Integrity 37.2 Create a Graph using this measurement

Private ownership of land is recognized, although property registration, as a result of decentralization, is sometimes complicated by local government requirements and claims. The judiciary has demonstrated some independence, but the court system remains plagued by corruption and other weaknesses. Corruption remains endemic at all levels, including in national and local legislatures, the civil service, the judiciary, and the police.

Government SizeView Methodology

The top individual income tax rate is 30 percent, and the top corporate tax rate is 25 percent. Other taxes include value-added and property taxes. The overall tax burden equals 11.5 percent of total domestic income. Government spending has amounted to 16.7 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 2.2 percent of GDP. Public debt is equivalent to 29.2 percent of GDP.

Regulatory EfficiencyView Methodology

Indonesia has made it easier to start a business, register property, and obtain credit, but businesses complain that the government changes rules affecting them without notice and without consultation. Its labor laws are more complicated than labor laws in other Asian countries and hurt competitiveness. The government has tightened energy subsidies, replacing the indirect liquefied petroleum gas subsidy with a targeted direct payment scheme.

Open MarketsView Methodology

The total value of exports and imports of goods and services equals 43.0 percent of GDP. The average applied tariff rate is 2.1 percent, and 112 nontariff measures are in force. Although Indonesia publicly welcomes foreign investment, investors face hurdles because of lingering inconsistencies in the investment codes. The financial sector is dominated by commercial banks that include state-owned banks. Capital markets are not fully developed.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.40.0
2Hong Kong89.1-1.1
3New Zealand84.1-0.3
4Australia82.61.7
5Taiwan77.1-0.2
6Malaysia 74.70.7
7South Korea741.7
8Japan73.31.2
9Macau70.3-0.7
10Kazakhstan69.64.2
11Thailand 69.41.1
12Indonesia67.21.4
13Brunei Darussalam66.61.5
14Philippines64.50.7
15Fiji63.41.2
16Kyrgyz Republic 62.90.6
17Bhutan62.1-0.8
18Samoa62.1-0.1
19Vanuatu60.74.3
20China59.51.1
21Vietnam58.83.5
22Tonga58.81.1
23Papua New Guinea58.40.0
24Sri Lanka57.41.0
25Cambodia57.3-0.5
26Uzbekistan57.23.9
27Maldives56.53.3
28India56.51.3
29Bangladesh 56.40.8
30Mongolia55.90.5
31Laos55.5-1.9
32Pakistan 54.8-0.2
33Afghanistan54.73.2
34Nepal54.20.4
35Burma540.4
36Solomon Islands52.9-1.7
37Tajikistan52.2-3.4
38Micronesia520.1
39Turkmenistan46.5-1.9
40Timor-Leste45.91.7
41Kiribati45.2-2.1
42North Korea4.2-1.7
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