2021 Index of Economic Freedom

Indonesia

OVERALL SCORE66.9
WORLD RANK56
Rule of Law

Property Rights59.4

Judicial Effectiveness48.9

Government Integrity39.1

Government Size

Tax Burden83.7

Government Spending91.8

Fiscal Health90.7

Regulatory Efficiency

Business Freedom71.3

Labor Freedom49.2

Monetary Freedom79.0

Open Markets

Trade Freedom79.2

Investment Freedom50.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 270.6 million
  • GDP (PPP):
    • $3.7 trillion
    • 5.0% growth
    • 5.0% 5-year compound annual growth
    • $12,302 per capita
  • Unemployment:
    • 4.7%
  • Inflation (CPI):
    • 2.8%
  • FDI Inflow:
    • $23.4 billion

Indonesia’s economic freedom score is 66.9, making its economy the 56th freest in the 2021 Index. Its overall score has decreased by 0.3 point, primarily because of a decline in judicial effectiveness. Indonesia is ranked 10th among 40 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

The Indonesian economy, which had been climbing steadily higher in the ranks of the moderately free since 2017, has suffered a setback. To get back on the path to greater economic freedom, the government needs to implement effective measures to reduce corruption, strengthen the judiciary, modernize and simplify investment regulations, and increase labor market flexibility.

IMPACT OF COVID-19: As of December 1, 2020, 17,081 deaths had been attributed to the pandemic in Indonesia, and the economy was forecast to contract by 1.5 percent for the year.

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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 now-267 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 facilitate future development, but barriers to international trade and investment undermine prospects for growth.

Rule of LawView Methodology

Property Rights 59.4 Create a Graph using this measurement

Judicial Effectiveness 48.9 Create a Graph using this measurement

Government Integrity 39.1 Create a Graph using this measurement

Property rights are generally respected, but enforcement is uneven, and registration of property is sometimes difficult. Indonesia has lacked clear land titles for decades. The judiciary is independent, but the court system remains plagued by corruption and other weaknesses. Corruption is endemic at all levels of government and law enforcement, and anticorruption laws are resisted even within the government.

Government SizeView Methodology

The top individual income tax rate is 30 percent, and the top corporate tax rate is 25 percent. Other taxes include property and value-added taxes. The overall tax burden equals 10.2 percent of total domestic income. Government spending has amounted to 16.5 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.2 percent of GDP. Public debt is equivalent to 30.4 percent of GDP.

Regulatory EfficiencyView Methodology

An online platform for business licensing in Jakarta helps business freedom, and electricity has become more reliable in Surabaya. A plan to reform rigid labor laws was overtaken by the pandemic. The government has launched a plan to privatize some of its 118 state-owned enterprises, many of which are unprofitable, inefficient, and increasingly expensive to subsidize.

Open MarketsView Methodology

Indonesia has 10 preferential trade agreements in force. The trade-weighted average tariff rate is 5.4 percent, and 123 nontariff measures are in effect. The reform-minded government has moved to dismantle some of the previously imposed barriers to foreign investment. Overall, the financial system’s efficiency has increased. The state still owns several banks. Bank ownership is limited to no more than 40 percent per single shareholder.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.70.3
2New Zealand83.9-0.2
3Australia82.4-0.2
4Taiwan78.61.5
5Malaysia74.4-0.3
6Japan74.10.8
7South Korea740.0
8Kazakhstan71.11.5
9Thailand69.70.3
10Indonesia66.9-0.3
11Brunei Darussalam66.60.0
12Philippines64.1-0.4
13Kyrgyz Republic63.70.8
14Mongolia62.46.5
15Fiji62.2-1.2
16Samoa61.9-0.2
17Vietnam61.72.9
18Vanuatu60.5-0.2
19Papua New Guinea58.90.5
20China58.4-1.1
21Uzbekistan58.31.1
22Bhutan58.3-3.8
23Tonga57.5-1.3
24Cambodia57.30.0
25Bangladesh 56.50.1
26India56.50.0
27Solomon Islands56.53.6
28Sri Lanka55.7-1.7
29Tajikistan55.23.0
30Burma55.21.2
31Maldives55.2-1.3
32Laos53.9-1.6
33Afghanistan53-1.7
34Pakistan51.7-3.1
35Nepal50.7-3.5
36Micronesia50.4-1.6
37Turkmenistan47.40.9
38Timor-Leste44.7-1.2
39Kiribati44.4-0.8
40North Korea5.21.0
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