Indonesia

Indonesia is a country that contains great economic potential; a potential that has not gone
unnoticed to part of the global community. Indonesia - Southeast Asia's largest economy -
contains a number of characteristics that put the country in a great position for newly advanced
economic development. Moreover, in recent years there is strong support from the central
government to curb Indonesia's traditional reliance on (raw) commodity exports, while raising
the role of the manufacturing industry within the economy. Infrastructure development is also a
key goal of the government, and one that should cause a multiplier effect within the economy.
Investing always encompasses risks. Generally speaking: the higher the risks are, the higher the
yields can become. This "law" particularly applies to an emerging market like Indonesia:
investing in Indonesia can be highly lucrative. However, it also entails more risks than investing
in a developed country because Indonesia contains a number of country-specific dynamics and
characteristics that (can) frustrate investment and undermine a conducive investment and
business climate.
Businesses should be prepared for:
 complex bureaucracy
 uncertain and unpredictable legal and regulatory environment
 lack of transparency
 high logistics costs
 developing infrastructure
 business culture where companies will rarely respond to emails
 being a trusted partner is more important than strong business case

Commercial risk
Lack of sufficient quality and quantity of infrastructure in Indonesia has been barring economic
and social development to reach its full potential. The country's recent macroeconomic growth in
fact proves to be a burden on its existing infrastructure as it needs to absorb significantly
increased economic activity. The government is aware of the need for huge investments in the
country's infrastructure but, overall, there tends to be more planning rather than much-needed
action although there are positive developments detected during the Joko Widodo administration.
There are various macroeconomic shocks or developments that can jeopardize economic stability
in Indonesia and therefore damage the investment or business in this country. For example, high
inflation, a heavily depreciating rupiah exchange rate, rising poverty, slowing GDP growth,
rising unemployment, or fiscal instability due to a widening current account deficit or weak tax
revenue. Other structural issues that remain to be tackled include a large public infrastructure
gap, high labor informality and youth unemployment, and low educational
attainment. Environmental protection also remains a major challenge.
Political risk
Indonesia has never impressed in the Annual Corruption Perceptions Index (by Transparency
International). This index indicates the level of political corruption in a given country. Currently
Indonesia's ranks number 88 (out a total of 175 countries) but its performance has shown a
steady improvement since the start of Susilo Bambang Yudhoyono's administration in 2004. This
section provides a detailed account on the past and present of corruption in Indonesia. A negative
side effect (for the country's economy) of this public scrutiny is that government officials are currently
very prudent and hesitant to disburse their government budget allocation, being afraid to become a
victim in a graft scandal. This careful behavior can be called the success of the influence of the KPK that
is watching the money flow, but also causes slower government spending.

Corruption in the judicial branch is a problem as it jeopardizes the credibility of the courts and therefore
undermines the attractiveness of the business and investment climate of Indonesia as investors have to
face a higher degree of legal uncertainty.

Apart from the issue of political corruption, there are other factors that negatively influence the
effectiveness and performance of (good) governance in Indonesia. It is obvious that governing
such an immense archipelago, containing almost 255 million people with different cultural and
religious backgrounds, does not come without problems. The people of Indonesia have limited
political rights.
Measures
The free media provide ample room to deliver their voices on a national scale, while zooming in
on various corruption scandals.
It is often stated that - in terms of policy making - there is a lot of planning in Indonesia but a
lack of implementation. Working on implementation of policies could be done.