Indonesian political economy | Invest Islands
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POLITICAL ENVIRONMENT

Indonesia is a vibrant democracy that continues to strengthen its political structures and deepen the enfranchisement of the population.

Indonesian Political Situation

Indonesia has undergone a political transformation since the upheaval of 1998 which saw the fall of General Suharto after 30 years of authoritarian rule and a collapse of the Rupiah.

The 2009 election results signaled a maturity among the electorate through the re-election of the incumbent president, Susilo Bambang Yudhoyono who became the first Indonesian president to be democratically elected for two consecutive terms. This in turn hugely boosted global investor confidence. His firm stance on terrorism and national security is another welcome continuation of his tenure.

In the 2020-2024 Medium-Term National Development Plan (RPJMN), the government provides an opportunity for foreign investors to enter and participate in the sustainable infrastructure development in Indonesia. The Government is optimist that foreign investors can also have wide opportunity to improve their investment scale in Indonesia.

Jokowi: A reform-minded leader​

Joko Widodo, known as Jokowi, won the presidential election in 2014 and re-elected in 2019 by vowing to boost growth, attract investments and improve infrastructure, making him the first president outside of the political and military elite.

Since assuming the top post, he has undertaken several reforms to fuel growth, albeit with different degrees of success. Nonetheless, he has improved the country’s fiscal credibility, improved public infrastructure, and created a market-friendly investment environment.

Some of the new reforms that have taken place:

  • Connectivity had become the main theme for infrastructure development in Indonesia. This focus on connectivity is seen as a direct precondition and a strategic priority for economic development in Indonesia, since Indonesia’s area is very wide, consisting of 17 thousand islands. This also shows a solid commitment to boost tourism and development across the entire archipelago.
  • The government has introduced 13 economic policy packages, which include reducing processing time for establishing a business, issuing permits, cutting administration costs, introducing measures to support small and medium businesses, and fiscal incentives to attract investments.
  • Another significant part of Jokowi’s economic reform is the change of foreign ownership, which has helped to create more opportunities for foreign investment. With the support of Jokowi, the revised foreign ownership rules, foreigners can now own and develop a land property in Indonesia without the need of a local nominee.

Political Stability

There are two events that define 2018 as the year of politics in Indonesia: Firstly, the Regional Heads Elections (Pilkada Serentak); Secondly, the 2019 presidential election.

Indonesia is enjoying a relatively increased democratic political atmosphere after leaving Suharto’s New Order regime in the past. The country is ranked 72 among 190 economies in the ease of doing business according to the latest World Bank annual ratings.

Indonesia Political Stability index (-2.5 weak; 2.5 strong)

For that indicator, The World Bank provides data for Indonesia from 1996 to 2018. The average value for Indonesia during that period was -1.08 points with a minimum of -2.09 points in 2003 and a maximum of -0.53 points in 2018.

Ease of Doing Business Index

Indonesia is ranked 73 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Indonesia remained unchanged at 73 in 2019 from 73 in 2018.

The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operationstronger protections of property rights.

Prosperity Index

According to the Legatum Prosperity Index 2019, Indonesia performs best on Social Capital and Economic Quality and scores lowest on the Living Conditions. 

The biggest positive change, compared to last year, came in Social Capital.

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