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Indonesia, a country of 262 million people, is Southeast Asia’s largest economy with a GDP of USD 1.1 trillion in 2019. While the economy contracted in 2020, economists predict that the economy will rebound in 2021, driven by a resumption in household spending, an improved investment and business climate, and global economic recovery. It 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 United States and comprised of over 17,000 islands.
With a decade of average economic growth of just over five percent, the government of President Joko Widodo (known as “Jokowi”) focused in his first term on improving infrastructure, diversifying the economy, and reducing barriers to doing business in Indonesia in an effort 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 the 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 $135 billion in July 2020), and stable prices with moderate-to-low inflation. 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, which would simultaneously revise more than 70 existing laws, to 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 are in favor of the bill’s streamlined bureaucratic processes and flexible labor regulations. The bill, if passed in its current form, will affect 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.