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- GDP (PPP):
- $1.3 trillion
- 5.8% growth
- 5.9% 5-year compound annual growth
- $5,214 per capita
- Inflation (CPI):
- FDI Inflow:
Indonesia’s economic freedom score is 58.1, making its economy the 105th freest in the 2015 Index. Its score has deteriorated by 0.4 point since last year, reflecting declines in business freedom, the control of government spending, and monetary freedom that counterbalance improvements in freedom from corruption and labor freedom. Indonesia is ranked 22nd out of 41 countries in the Asia–Pacific region, and its overall score is below the world and regional averages.
Steady growth in economic freedom over the past five years has tapered off more recently. However, since 2011, economic freedom in Indonesia has advanced by over 2.0 points, reflecting a more sustained commitment to opening up the financial sectors and improving the investment regime. Other changes have led to score advances in six of the 10 economic freedoms, reflecting relatively broad-based policy improvements.
Nonetheless, economic freedom remains weakly entrenched in Indonesia. The judiciary has demonstrated some independence, but corruption is present. Overregulation of the business and labor markets leads to inefficiencies in labor supply and business formation. Despite its presence in a dynamic East Asian trading network, Indonesia remains relatively closed off from the global marketplace.
Indonesia is the world’s most populous Muslim-majority democracy. Since 1998, when long-standing authoritarian ruler General Suharto stepped down, Indonesia’s 250 million people have enjoyed a widening range of political freedoms, and participation in the political process is high. Joko Widodo, former businessman and governor of Jakarta, won a tight race for the presidency in 2014, pledging to end corruption and promote economic reform. Weak rule of law remains a major impediment to attracting capital. As a member of the G-20 and a driving force within the Association of Southeast Asian Nations, Indonesia plays a growing role at the multilateral level. Its increasingly modern and diversified economy has recovered from the 2009 global recession.
Corruption remains endemic, including in the parliament and other key institutions like the police. The judicial process is slow and inefficient. In June 2014, the former Constitutional Court chief justice was sentenced to life imprisonment for accepting more than $4.8 million in exchange for favorable rulings in regional election disputes. Property rights are generally respected, but enforcement is inefficient and uneven.
The top individual income tax rate is 30 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax and a property tax. Overall tax revenue equals 11.9 percent of domestic income. Public expenditures are equivalent to 19.7 percent of the domestic economy, and public debt corresponds to 26 percent of gross domestic product.
Progress in improving the entrepreneurial environment has been modest. Launching a business takes 10 procedures on average, and meeting licensing requirements takes 200 days. The labor market lacks flexibility, and complex regulations hinder job growth. Fuel subsidies consumed 13 percent of GDP in 2014, although President Widodo announced that he will phase out fuel subsidies entirely within the next four years.
Indonesia’s average tariff rate is 2.6 percent, and non-tariff barriers are numerous. State-owned enterprises play a large role in the economy. Foreign investment in several sectors is capped. The government still retains ownership in the banking sector, which is stable and evolving. Supervision of the sector has recently been transferred from the central bank to the Financial Services Authority.