Indonesia - Country Commercial Guide
Market Overview
Last published date: 2022-07-28

Indonesia, a country of 277 million people, is Southeast Asia’s largest economy with a GDP of 1.19 trillion USD in 2021.  While the economy contracted in 2020, it rebounded in 2021, growing by 3.69%., driven by stronger global growth and a gradual improvement in domestic demand. By the end of 2021, Indonesia’s economy grew by 3.69%. Indonesia is a thriving democracy with significant regional autonomy. The country is located on one of the world’s major trade routes and has extensive natural resource wealth distributed over an area the size of the Continental United States, and is comprised of over 17,500 islands.

With a decade of average economic growth of just over five percent, the government led by President Joko Widodo (known as “Jokowi”) focused his first term on improving infrastructure, diversifying the economy, and reducing barriers to doing business in Indonesia; in an attempt to propel the economy beyond middle-income status over the next generation.  Re-elected to a second term in November 2019, President Jokowi and his cabinet have reaffirmed these commitments and called for a renewed emphasis on infrastructure and human capital development to upskill Indonesian workers and help drive growth in manufacturing and digital sectors.

The Indonesian economy possesses sound fundamentals of social stability, strong domestic demand for goods and services, steadily increasing foreign reserves (just under $139. billion in March 2022), and stable prices with moderate-to-low inflation, although non-core inflation has incrementally risen during the first half of 2022. However, persistent trade and investment barriers driven by protectionist sentiment, persistent and pervasive corruption, poor infrastructure, inconsistent interpretation and enforcement of laws, and labor rigidity continue to inhibit greater levels of economic growth and prosperity.

In mid-February 2020, the Government of Indonesia submitted an omnibus bill on Job Creation to the Indonesian parliament designed to revise more than 70 existing laws, streamline red tape, attract greater levels of investment, and fuel job creation and economic growth. Labor and environmental groups, as well as those opposed to increased centralized government control, have been largely at odds with the business groups that favor the bill’s streamlined bureaucratic processes and flexible labor regulations. The bill, passed on October 5th2020, affects all aspects of the Indonesian economy, including how U.S. businesses engage. Topics include investment, labor, micro-small-and-medium enterprise policy, research and innovation, land acquisition, economic zones, job creation, sanctions and fines, sovereign wealth fund activity, and more.  Indonesia’s Constitutional Court ruled on November 25 that the passage of the Omnibus Law on Job Creation (No. 11/2020) was unconstitutional due to the opaqueness of the process by which the law was created and the fact that proposed revisions were not fully shared with the public.  The court has ordered lawmakers and the Jokowi administration to revise the law within two years, specifying that if no revisions are made by that deadline, the law will become defunct.  Parts of the law already enacted via implementing regulations are still considered constitutionally valid during the two-year grace period set by the court though many of the law’s implementing regulations have not yet been released.

Political & Economic Environment:  State Department’s website for background on the country’s political environment.